LONDON Investors keen on gold showed frustration at underperforming funds that invest in mining firms as liquidations extended for more than four straight months, while money flowed into funds that invest in the underlying metal, data from Lipper showed.
Gold mining stocks have underperformed the metal over the last several years as companies struggled with rising costs and operational problems in far-flung locations, but the figures show an accelerating trend.
The net outflows from U.S. funds that invest in gold and precious metals mining companies such as Barrick Gold Corp (ABX.TO) and Newmont Mining Corp (NEM.N) continued for the longest period since 2008.
Executives from Barrick, Newmont, Goldcorp (G.TO) and Gold Fields (GFIJ.J) are among guests who will be attending the Reuters Mining and Metals Summit next week.
"We have not previously seen that kind of trend of consistent outflows from the gold and precious metals equity funds," said Tom Roseen, senior analyst at Lipper.
At the same time, investors were sending money into U.S. funds that invest in gold bullion, futures and other precious metals, according to Lipper, a Thomson Reuters company that provides fund data and analysis.
Since November, including data for the first half of March, $3.75 billion has flowed into U.S. commodity precious metals funds while about $850 million was liquidated from the equity funds during the same period.
The flows reflect the sharp different in performance between the two categories. Over the past 12 months, precious metals equity funds shed 12.1 percent while underlying metal funds gained 6.8 percent.
Neither fund category, however, captured the 19 percent gains over the period in the spot gold price, perhaps due to investments in other precious metals such as platinum and silver, which have failed to match gold gains over the period.
Gold has had a volatile ride since late last year, touching a record peak of $1,920 an ounce in early September before lurching to a low of $1,522 in December. Early this year it shot up again towards $1,800 before sliding again.
All the precious metals equity funds were in negative territory during the 12-month period and as a whole were the worst performer among Lipper's 25 categories of funds that focus on specific sectors.
The underlying metals fund performed better than the average 3.7 percent gain for all the funds, but failed to match the top two categories: consumer services and health/biotechnology funds, both up around 18 percent.
"People are making moves back into equities, but when they are doing it they're going into dividend payers," Roseen said.
Gold mining equity valuations
Gold equities vs. gold price
Since exchange traded funds (ETFs), which allow easy investment in gold bullion and other precious metals, took off about five years ago, valuations of gold producers have struggled.
"It's a difficult one for the gold mining companies because they have to keep giving investors convincing reasons why they should be preferred over the underlying commodity," said analyst Tom Kendall at Credit Suisse in London.
"If you're struggling to control costs and if the perception of investors is that the political or operational risk is rising in the areas in which you're operating, then you're facing an uphill battle."
Valuations of gold miners, which previously attracted a rich premium, have plummeted to the lowest levels in over a decade and early this year slipped below the average of other stocks.
Global gold mining stocks currently have an average forward price earnings ratio of 10.5, below world equities at 12, according to Thomson Reuters Datastream. This contrasts with a PE of 30-35 for gold miners in 2005-2006, more than double the world equity average.
While Kendall currently sees gold shares as undervalued, he is unsure how much they will be able to claw back their premium.
"I suspect there are still a significant number of investors out there who expect at some point in time that valuation gap to narrow somewhat, but I don't think there are many who expect it to come back to what it used to be."
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(Reporting by Eric Onstad)