Investors in gold miners are getting cold feet.
After more than doubling in the first half, a gauge of 14 senior global gold producers posted the smallest gain in a year in the third quarter. Investors poured the least money into SPDR Gold Shares last quarter since late 2015, when the largest exchange-traded fund backed by the metal saw three straight quarterly outflows.
Alan Gayle, the senior strategist at Atlanta-based RidgeWorth Investments, returned to gold miners in the first quarter, allocating 5-per-cent of his portfolio in VanEck Vectors Gold Miners ETF just before the ETF had its steepest quarterly rally in March since its inception a decade ago. Over the past month, Mr. Gayle said he has pared that allocation by a quarter. He wasn't the only one. While there's been no drastic change in the outlook for the metal they produce, soaring valuations of miners are giving investors the jitters, with the Bloomberg Intelligence (BI) Global Senior Gold Valuation Peers jumping as much as 158 per cent this year. In the second quarter, investors were valuing these companies' reserves at an average of $182 (U.S.) for every ounce of gold in mines, almost double their level just two quarters earlier and the highest since 2012, data compiled by Bloomberg Intelligence show.
"We like the fundamental story for the gold miners both as a hedge and as a recovery story, but they did look a bit extended and started showing some softness," Mr. Gayle said in an interview recently. "That's when we decided to take a little bit of profit off the table. We still think that the upper trend is likely to resume, which is why we still own gold miners, but we'll wait before we put any fresh money into it."
The BI Global Senior Gold Valuation Peer Group, a basket of 14 producers, was up 0.1 per cent in the third quarter, the least since the same three months of last year, when prices fell. The gauge's rise in the first half was the biggest such gain in records going back to 2005.
AngloGold Ashanti Ltd., Barrick Gold Corp. and Yamana Gold Inc. led declines in the index this quarter, each losing more than 12 per cent in the third quarter.
The rally in gold futures traded on the Comex in New York slowed to 0.3 per cent in the third quarter, after climbing 25 per cent in the first six months, the best first half in almost four decades.
At the end of the second quarter, miners traded at about 26 times estimated earnings, compared with 17 times for the members of the MSCI world index of equities and 18 times that of companies in the Standard and Poor's 500 index. That same quarter, fund managers including billionaire George Soros, who accumulated shares of producers such as Barrick and Newmont Mining Corp., began unloading mining equities.