What happened
In August, precious metal stocks Barrick Gold (GOLD -0.81%), Franco-Nevada (FNV 1.33%), Wheaton Precious Metals (NYSE: WPM), and Royal Gold (RGLD 0.26%) returned 19.4%, 12.5%, 13%, and 16.5%, respectively, according to data from S&P Global Market Intelligence.
Meanwhile, the S&P 500's performance was tarnished, as the index which acts as a proxy for the broader market fell 1.6% last month.
Image source: Getty Images.
So what
We can attribute the strong August performances of Barrick, Franco-Nevada, Wheaton, and Royal Gold stocks to investors becoming increasingly anxious about a looming recession. So, they've been pouring money into gold and silver stocks, as these precious metals are viewed as safe havens in times of economic and/or political uncertainty. They're also considered hedges against inflation.
Fears of a recession have stemmed from slowing global growth and concerns that the Trump administration's escalating trade war with China could further crimp the world's economy.
Data by YCharts. Gold price and Gold Miners ETF included for additional context.
As for the stocks highlighted here, Barrick Gold is a precious metal miner headquartered in Toronto, while Franco-Nevada, Wheaton, and Royal Gold are streaming companies. They provide miners with cash up front in exchange for the right to buy precious metals at reduced rates in the future. Like Barrick, Franco and Wheaton are Canadian companies, and are based in Toronto and Vancouver, respectively. Royal Gold is headquartered in Denver, Colorado.
Wheaton had traditionally been more focused on silver, but that's changed in recent years, and the stock is now a bit more of a play on gold than silver. All the other companies are primarily focused on gold. Moreover, Wheaton isn't a pure play on precious metals, as it also has investments in oil and natural gas assets. These accounted for about 16% of its revenue in the second quarter.
Streaming stocks tend to be less volatile, as they don't have the considerable risks and costs associated with operating mines. When gold prices pop -- as they did last month, by 7.1% -- miners will usually outperform streamers. This was the case in August, with Barrick winning the gold (pardon the pun) for its performance among our four precious metal stocks. That said, the opposite is also true: When gold prices fall, mining stocks tend to be harder hit than streamers.
Expanding our lens beyond one month, you can see that gold stocks have been having a great 2019, thanks largely to robust performances over the last few months.
Data by YCharts.
The longer-term picture isn't as pretty. Over the last decade -- a period that corresponds nicely with the current bull market, which began in the spring of 2009 -- all four gold stocks were underperforming the broader market until very recently. The recent rise in the sector has lifted Franco-Nevada stock's 10-year return (310%) above that of the S&P 500 (256%). Royal Gold and Wheaton have returned 240% and 198%, respectively, over the last decade. Shares of Barrick have not simply underperformed the market, but have declined by nearly 44% over this period, underscoring the increased riskiness associated with mining stocks. The price of gold has increased nearly 55% over the decade. (The price of silver has declined nearly 4% over this period, which is a reason that Wheaton has shifted its focus from silver to gold in recent years.)
Now what
Given the extreme volatility of the precious metal space, it's generally not a good fit for most long-term individual investors. For those risk-adverse investors who do want some exposure to gold or silver, streamers are often a less risky bet than miners.
