As we write, gold has surged past the $2,500 mark for the first time in history, an event that would seem to herald a golden age for gold stocks. Yet paradoxically, these stocks have seldom been cheaper. What underlies this dissonance, and what might it portend for the future?

Before delving into these questions, it’s instructive to reflect on the historical backdrop. The last great bull market in gold spanned from 1999 to 2011, during which the price of gold soared from $252 to $1,900 per ounce, an eightfold increase. After a sharp correction between 2011 and 2015, gold resumed its upward trajectory, now trading 30% above its 2011 peak. Gold equities, however, have failed to follow suit. The NYSE Arca Gold Bugs Index (HUI), a benchmark for gold stocks, languishes at 312, more than 50% below its September 2011 high. Even more striking, the HUI today is only 10% above its August 2016 level—when gold was a mere $1,300 per ounce. Meanwhile, the HUI’s earnings per share are expected to quadruple this year compared to 2016.
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