Bullion has gained nearly 35% since January. Shares in gold miners are up by around the same amount. Despite their recent run, the miners appear a more attractive inflation hedge than the lustrous metal they produce.
Anyone acquainted with the industry might find that hard to believe. Historically, gold miners have offered remarkably poor protection against rising prices.
Over the past three decades the index of US consumer prices more than doubled and the price of gold rose sixfold. Over the same period, the Philadelphia Gold and Silver Index of listed miners climbed by about 40%. The mining benchmark remains well below its peak in 2011. Since that date US prices and bullion have risen by 33% and 55%, respectively.
Few industries have a more dismal record of allocating capital.
After the gold price took off in the early 2000s, miners pursued growth at any cost. They borrowed freely, splurged on new…
