Gold price soars, but miners' shares lag

By Steve James - Analysis

NEW YORK (Reuters) - Gold has soared 10 percent in six weeks, but shares in gold mining companies have fallen and analysts believe potential investors might be concerned the precious metal's surge will not last.

"There is quite a lot of anxiety among the core investors, the gold bugs, about the gold breakout," said Peter Spina, who operates an investor web site, goldseek.com. He said every time gold has hit a new high, the surge has not been sustained.

"Many investors are sitting on the sidelines, but once gold proves itself, they will rush back."

Jeffrey Nichols, managing director of American Precious Metals Advisors, said the rebound in the stock market since last year's recession has meant competition for investor money from other stocks and also gold-based Exchange-Traded Funds, or ETFs.

"Equity markets are still very strong and investors who might go into gold company stocks see competition in other stocks," he said. "The introduction of gold ETFs appeals to people who might otherwise buy gold company stocks. It's as easy as buying shares and gives you a proxy for buying gold."

Nichols said stocks are subject to risks which are not shared by gold bullion or ETFs.

"There is management risk, country risk, labor risk and mining costs are always increasing, so many investors see these things and are attracted to ETFs instead of buying shares."

Since September 1, the New York gold futures price has risen from $953.50 per ounce to $1,048.60, passing the previous record high of $1,030 last Tuesday.

But in comparison, the S&P Gold Index .GSPGOLD, which tracks gold mining company stocks, has fallen by about 12 percent since July 2008.

Top gold miners Barrick Gold Corp (ABX.TO) (ABX.N) and Newmont Mining (NEM.N) rose last week as gold took off. But Newmont was trading around $46.50 on Friday, below its 52-week high of $49.84 in June, and Barrick's share price of $39.48 was off the $41.98 high last month.

Frank Holmes, chief executive officer of U.S. Global Investors, a fund manager in San Antonio, Texas, said gold historically has rallied in September, followed by a correction in October or November.

"For every one percent correction in the gold price there is a 3-percent correction in company stocks," he said. "Stocks did not make a new high, but bullion did.

"(So) Real investors do not believe this is sustainable... they think they have to be cautious," he said.

His advice to investors? "Go buy a 22-karat piece of gold jewelry, or you can buy ETFs. But the stocks correction will be more severe."

Holmes noted oil, copper, zinc and other commodities all surpassed previous record highs when adjusted for inflation, but gold has not. In 1980, gold hit a high of $850 per ounce, which would be the equivalent of $2,300 today, he said.