What’s Riskier: Treasuries or Mining?

07/12/2012 4:13 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

The answer isn’t as obvious as it seems, writes MoneyShow’s Jim Jubak, also of Jubak’s Picks, because many of the big gold names pay finer yields, and may carry less long-term inflation risk.

A funny thing has happened to gold stocks as a result of the current sell-off: Many of them now pay a higher yield than five-year US Treasuries. A few even pay more than ten-year Treasuries.

Yep, the long-term knock on gold stocks—that they don’t pay anything while you wait for long-term inflation to eventually create a rally in gold prices—is no longer true.

Here are some of the numbers. The yield on the five-year US Treasury is 0.63% today, July 12. And 1.48% on the ten-year Treasury.

The yield on shares of Goldcorp (GG), slammed yesterday after the company cut projections for 2012 production, stands at 1.66% (Goldcorp pays its dividend monthly, by the way.) For Yamana Gold (AUY), the yield is 1.81%. For Newmont Mining (NEM), the yield is 3.09%.

I leave it to you to decide whether Treasuries or gold carry more long-term risk from rising inflation. And whether US interest rates and yields on Treasuries will continue to fall in 2012 (which would result in gains in Treasury prices).

My answers, for what they’re worth, are that Treasuries carry more long-term inflation risk than gold, since the price of Treasuries will go down and the price of gold up in the event of inflation, and that Treasury yields are likely to fall—and Treasury prices to rise—for the rest of 2012.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Goldcorp and Yamana Gold as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio here.

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