Investors continued to pour into precious metals in March, adding a hefty $1.2 billion into the mutual funds and exchange-traded funds that concentrate on the specialty sector.
That brought the total flow of cash into the subsector for the first quarter to $3.6 billion as investors sought safe-haven assets amid the ongoing credit crisis, which brought investment bank
to its knees, surviving only after a rescue by
But funds that solely held the metal won out over those that owned shares of mining companies by a factor of more than 5 to 2, according to the most recent data from Boston-based company Financial Research Corporation.
Topping the list of winners, as it did every month last quarter, was the
streetTracks Gold Shares
ETF, which solely owns bars of gold bullion, taking in a net $590 million. The other two precious-metals bullion funds,
iShares Silver Trust
iShares Comex Gold Trust
, added $140 million and $139 million respectively, bringing the total added to the bullion group to $869 million.
That compares with a monthly total of $336 million flowing into
the mutual funds that invest in the stocks of mining companies. The mutual fund taking in the most was the $2.2 billion
Fidelity Select Gold
, adding $172 million, while investors pulled out $25 million from $1.9 billion
Market Vectors Gold Miner
, the fund that lost the most during March.
At least part of the reason for the success of the bullion products relative to their mining share-focused counterparts must be their relative ease of use, says Jean Marie Eveillard, portfolio manager of First Eagle Funds in New York, which runs the $1.2 billion
First Eagle Gold
"There is no doubt the gold ETFs have been considerable competition for the gold mutual funds," says Eveillard.
Prior to the introduction of the bullion exchange-traded funds in the first half of the decade, if you wanted to be involved with physical gold it was "extremely cumbersome" -- and that meant the only practical alternative was buying mining stocks.
People wanting to buy gold had to find a dealer (preferably a reputable one) and then lug the metal home, he says. And when it came time to sell, the process was just as cumbersome and expensive.
"Then, all of a sudden, you could buy gold bullion in paper form. So it became very easy to buy gold in its pure form," rather than through owning mining shares or mutual funds. And when buying paper gold, investors don't have to worry about the operating risks inherent in mining operations.
In addition to that, at least another part of the problem seems to be that investors large and small have woken up to the fact that, recently, mining shares just haven't been keeping up returns from owning the metal -- which wasn't always true.
While spot prices for bullion have rallied 9% to about $854 an ounce from $783 over the past six months, the gold miners, as measured by the Amex Gold Bugs Index, were actually down by about 10%.
GDX vs. GLD
That's a change from the past, when mining shares have outperformed the commodities they produced during periods of price appreciation.
"The operating leverage that they could get, that could cause them to outperform,'" says James Bianco, president of Bianco Research in Chicago.
Typically, that meant that an increase in profits would be magnified when the price of gold rose. But that has not been the case lately.
"A lot of companies have not been able to deliver on the operating leverage," adds Bianco. "And I think that's what investors have figured out."