Gold Miners’ Share Prices Lag Bullion

Gold mining stock performance continues to fall behind price of bullion. Over the last six months, the SPDR ETF Gold Shares have increased by almost 10%. The Market Vectors ETF Gold Miners has decreased by 5% in this duration. The disparity between the two has traders feeling uneasy regarding rising gold prices. However, David Einhorn’s recent endorsement of companies in the gold mining business shows that it is possible that miners might match bullion prices soon.

Einhorn’s Opinion on the Disconnect

Einhorn is a hedge-fund manager and the chairman of Greenlight Capital. He believes that the increasing disconnect between bullion prices and gold miners will eventually reverse. He said that with gold at the current price, the mining companies will have the opportunity to get two-digit free cash returns. They will also offer better risk adjusted returns, whether gold advances further or not. He believes that if the value of gold continues to rise, so will the gold stocks.

Greenlight Capital Invests in Gold Miners

As President of Greenlight Capital, Einhorn has cut down his gold holdings in the 3^rd quarter and has moved that funding into the ETF Market Vectors Gold Miners. In a regulatory filing, Greenlight Capital stated that taking into account the challenging environment, it intends to continue to hold an important position in gold and macro hedges. The company intends to do this by having higher foreign exchange rates and interest rates as well as keeping short positions in sovereign credit swaps and debts.

Recently, MF Global filed for bankruptcy after making leveraged bets on the zone debt (euro). The company had credit swaps but it was rendered invalid by the 50% Greek cut. Gold is still the best insurance.

What Other Miners are Doing

Many miners are refusing to wait for the disconnect to end to give shareholders their returns. Recently, Barry Gold reported a 25% rise in its dividend payouts. In the past five years, Barrick has shown a consistent record of giving more capital to its shareholders and has increased its dividend by 170% each quarter.

Gold miners believe that the prices of gold will rise as indicated by the dividend policies in the industry.