Tale of the Tape: A Rough Year for Gold and Silver Investors

Amid a dramatic bull market trend of the sort that has characterized gold over the past decade, we can comfortably label a year in which bullion proxy SPDR Gold Trust (NYS: GLD) outperformed the index-tracking SPDR S&P 500 (NYS: SPY) by only 14.9% as a relatively rough year for gold.

As 2011 draws to a close, gold and silver investors are receiving a poignant reminder of just how volatile and challenging the journey to precious-metal profits can be. While storm clouds grow darker over Europe's acute debt crisis, the U.S. dollar remains the ironic beacon of strength relative to a rapidly crumbling euro currency. Accordingly, gold and silver have snapped back violently, and on Wednesday morning gold collapsed through key technical levels as both the 200-day moving average and the $1,600 level failed to hold. Without intense buying activity in Asia, moreover, it is likely these prices would have dived lower still. Incredibly, Chinese gold imports reportedly surged by 4,000% in October over the prior-year mark to reach 85.7 tonnes!

But if you think gold's relatively meager outperformance of the benchmark S&P 500 (INDEX: ^GSPC) during 2011 came in short of expectations, have a look at silver. After surging to nearly $50 per ounce earlier in the year amid an epic short squeeze, the metal has reversed course from that nearly 60% advance to a monster retreat back into negative territory for the year to date.

And if you think bullion investors have had a rough ride through all the volatile action, you'll reel at the carnage in the trampled mining sector. The Market Vectors Gold Miners ETF (NYS: GDX) -- known colloquially as "the GDX" -- is down 12% for the year as of Tuesday's close, while record profits by silver producers have failed to stave off a gut-wrenching 21% decline for the Global X Silver Miners ETF (NYS: SIL) .

Hits and misses among my top picks for 2011
Around this time last year, I issued my top 10 stock picks for 2011 among the miners of gold and silver, but the sector's rough ride ensures this will not count among my best years of picking the winners. As a long-term, buy-and-hold investor, I am prepared to endure the occasional rough year, so long as the underlying investment thesis remains intact. In the case of gold and silver, I believe there can be little doubt that the conditions to support higher metal prices will continue to pile up even as this near-term sell-off dips deeper. In accordance with my unabashedly bullish stance toward precious metals, and my continuous tracking of the individual stocks I picked, I continue to personally own every stock on that list (except, of course, for Northgate Minerals, which was acquired by AuRico Gold (NYS: AUQ) ). Likewise, they all remain active outperform picks in my Motley Fool CAPS portfolio.

AuRico Gold (previously Gammon Gold) earned my highest recommendation for 2011 as a standout turnaround story in the making, and, indeed, the company achieved a remarkable run of strategic advances during 2011 through a pair of aggressive gold acquisitions. Despite a deep pullback during the second half of the year, the stock remains ahead of the S&P 500 by nearly 7% and is outpacing the GDX by more than 16%. At its year-to-date peak, AuRico logged a 73% advance that I hope provided some benefit to my readers. As AuRico's recently acquired Young-Davidson mine comes into production during 2012, I look for AuRico to regain its growth momentum in convincing fashion.

I selected AuRico acquisition target Northgate Minerals as my No. 2 pick for 2011. Since it was clear to me that the market failed to comprehend the full value of the Young-Davidson project, I am pleased that AuRico did and that Northgate's Toronto-listed shares advanced some 17% in 2011 before trading ceased in late October.

There is no way to sugarcoat it: My No. 3 selection of Brigus Gold (ASE: BRD) was an outright disaster in 2011. The stock has been chopped in half year to date! But I personally inspected the company's flagship Black Fox Mine in June, and I was so impressed by the positive developments under way that I doubled down on the stock after my return. I concede that I stepped to the plate a bit early with this one, but I am more than happy to wait patiently while Brigus ramps up underground production and ushers its new gold discoveries at the project toward fast-tracked development.

My No. 4 selection was another standout winner, as Yamana Gold (NYS: AUY) finally began to close the enormous valuation gap that I have been pointing out to my readers for several years now. Yamana tied Northgate for best performance of the bunch -- with a 17% advance year to date -- and outperformed the GDX by a convincing 29%. With strong production growth still in the works, I expect solid gains from the stock to persist for years to come.

Silver miner Coeur d'Alene Mines (NYS: CDE) has shed only 2.7% year to date, roughly matching the performance of the S&P 500. But the company continues to churn out silver at reasonable costs, and I expect the resulting cash flow to facilitate some strategic acquisitions in the not-too-distant future. Fresh from an embarrassing snafu where Coeur reportedly permitted some mining claims in Nevada to expire, I think the company's new CEO will head into 2012 eager to redeem himself.

Fellow silver miner Alexco Resource (ASE: AXU) has shed 14% so far in 2011, but even that underwhelming performance is better than the corresponding 21% retreat by the Global X Silver Miners ETF. I expected a strong showing in 2011 by gold producer Primero Mining (NYS: PPP) , and a proposed transaction with Northgate nearly cemented that outcome before AuRico swooped in to spoil the party. In the battered stock left behind by that melee (down 32% for the year), however, I see the greatest gold stock in the world.

Great Panther Silver (ASE: GPL) took a beating this year as the miner broke a prior six-year winning streak of expanding production volume and toiled with isolated patches of ore of a lower grade than the mine plan had anticipated. Here again, I subsequently visited the miner's flagship operation in order to gain first-hand perspective of the operation and where it was heading. At current prices, I consider the stock an absolute steal, and I look forward to celebrating a reinvigorated growth trajectory once the recent hiccups are ironed out. Rubicon Minerals (ASE: RBY) has careened 36% lower during 2011 despite a major strategic investment by Agnico-Eagle Mines (NYS: AEM) , and shares of Taseko Mines (ASE: TGB) -- now 48% beneath where they began the year -- now trades well beneath any rational notion of fair value even for the miners copper and molybdenum assets alone. A clever Fool, then, will appreciate exposure to the miner's gold and niobium resources that are essentially free.

Peering toward 2012
Later this month, I will be issuing a fresh round of top picks among the miners of gold and silver, and I invite Fools to review my selections as the relevant articles are posted here. I suspect that a few of the names discussed above may vie for a position on the list for 2012, but I am mulling a range of candidates that I have not previously discussed at length. If you join me in thinking that quality miners of gold and silver will surge once again following this relatively dreadful performance in 2011, then take a moment to add these and other stocks to your watchlist using the links provided below. While, of course, it is possible for weakness in gold and silver to persist in the near term as Europe's crisis foments a stampede into the U.S. dollar, I urge Fools to hone their focus upon the gold- and silver-supporting scenarios that follow thereafter.

At the time this article was published Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Agnico-Eagle Mines, Alexco Resource, AuRico Gold, Brigus Gold, Coeur d'Alene Mines, Great Panther Silver, Primero Mining, Rubicon Minerals, and Taseko Mines. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


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