Stock Market: The Rise of Gold and the Great Disconnect


Despite the rising price of gold, for the most part gold mining shares have not benefited. Photo: Lemon_tm/Getty Images

Gold is setting new records daily. The price of the precious metal hit US$2,194.90 in intra-day trading on March 8, an all-time high. 

This comes as a bit of a surprise. Gold had been trending higher for the past year, but few investors have been buying into the rise. Gold futures were trading one year ago at US$1,970. At the current price, they’ve gained 10 per cent over the past 12 months and appear to have more upside potential. 

What’s happened? Several factors are contributing to the price jump. They include:

Gold’s safe haven status: Wars in Ukraine and the Middle East threaten to escalate. Israel has launched strikes into Lebanon, targeting Hamas leaders and Hezbollah positions. Commercial shipping in the Red Sea continues to come under attack from Houthi rebels, despite raids by the U.S. and Britain on launch sites. Gold has traditionally been a refuge in such turbulent times. 

Central banks are buying: Asian central banks are adding to their gold reserves, reducing dependence on the U.S. dollar. This puts upward pressure on the gold price.

Donald Trump: There is speculation that some buyers are stocking up on gold as a hedge against a Trump election win in November, which has the potential to lead to major disruptions in global trade and defense alliances.

Lower interest rates: This is the primary driver. The Federal Reserve Board has signalled it will cut interest rates by a quarter point at least three times this year, beginning in the summer. Lower rates tend to weaken the U.S. dollar, which in turn drives up the gold price. About 70 per cent of U.S. investors now expect the rate cuts to start in June.

You’d think that rising gold prices would be reflected in the shares of mining companies. However, that’s not happening. The TSX Global Gold Index, which tracks shares of gold miners, gained only 2.44 per cent in 2023, and most of the major gold mining stocks were either in negative territory or ended with low single-digit returns.

So far this year, the Global Gold Index is down 2.27 per cent (to March 13). Barrick Gold (ABX-T) is down 10 per cent, and B2Gold (ELD-T) is off 15 per cent. There are exceptions: Iamgold Corp. (IMG-T) has gained almost 26 per cent year-to-date. But big winners are few and far between. Most of the mining stocks are in the red or showing low single-digit profits.

John Hathaway, Managing Partner at Sprott and Senior Portfolio Manager at Sprott Asset Management USA calls it “the greatest disconnect I’ve ever seen” in his 25 years tracking the metal. 

In an on-line interview with Charlotte McLeod of, he blamed the phenomenon partly on crypto, which he said “has certainly taken some of the air out of the room for gold mining stocks”.

But the major challenge, he said, is the popularity of passive investing, specifically in gold ETFs that track the physical metal.  

“It’s fair to say that the gold-backed ETFs have cannibalized demand for gold mining equities,” Mr. Hathaway said. His advice to the miners? Buy back their cheap stocks rather than make risky bets on new mine start-ups. 

In this situation, the best way for investors to get in on the gold action is to focus on the metal itself. An easy way to take a position is to buy units in the SPDR Gold Shares ETF (GLD-N), which was trading at US$200.34 at the time of writing. It’s the largest physically backed gold ETF in the world, and accurately tracks the movement of the underlying metal.

The fund was launched by State Street Global Advisors in 2004 and has an expense ratio of 0.4 per cent. That seems to be on the high side for an ETF that requires no active management, but there are costs involved in owning the gold that backs up the units, including storage and insurance. The fund has over US$56 billion in assets under management.

As a long-term hold, the fund has generated an average annual compound rate of return of 7.77 per cent since inception (to Jan. 31). Year-to-date, it’s ahead 5.5 per cent. The fund does not pay any distributions.

There are several other physical gold ETFs, including some based in Canada, like the iShares Gold Bullion ETF (CGL-T). All have similar characteristics. 

Yes, you will be contributing to the cannibalization of the mining stocks by doing this. But until the market shifts position, physical gold ETFs are best option if you want to ride the trend.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to 


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