Physical Gold or Paper Gold - Which would you pick?

Recent articles in the mainstream media have been discussing the merits of owning gold stocks versus owning the physical metal either through ETFs or by holding the yellow metal itself.  In this posting, I'll take a quick look at 3 well known Canadian senior gold miners, the changes in their share price over the past 3 years and compare that to the changes in the price of the metal itself.

The first company I'll look at is Barrick Gold (ABX on the TSX and NYSE).  It is the world's largest pure gold producer with the largest gold reserves in the industry.  Barrick produced 7.42 million ounces of gold in 2009 and has reserves of 139.8 million ounces.  Here's their NYSE chart for the past 5 years:

The stock hit a three year high of $54.74 in March 2008 and a low of $17.27 in October 2008 for a net change of -$37.47 or a drop of 68.5%.  On October 29th, 2010 it closed at $48.09, still nearly 14% off its high in 2008.

The second company I'll look at is Agnico Eagle.  Agnico Eagle is a Canadian-based gold producer with  production in Canada, Finland and Mexico.  In 2009, the company produced 493,000 ounces of gold (anticipated to grow to 1.057 million ounces once new mines come onstream in 2010) and has reserves of 18.4 million ounces.  Here's their NYSE chart for the past 5 years:

The stock hit a three year high of $83.45 in March 2008 and a low of $20.87 in October 2008 for a net change of -$62.58 or a drop of 75%.  On October 29th, 2010 it closed at $77.59, again, nearly 8% off its high in 2008.

Finally, I'll look at Goldcorp, another Canadian-based gold producer.  Goldcorp has production in Canada, the United States, Mexico, Guatemala and Argentina.  In 2009, Goldcorp produced 2.42 million ounces of gold and has reserves of 48.75 million ounces.  Here's their NYSE chart for the past 5 years:

The stock hit a three year high of $52.65 in July of 2008 and low of $13.84 in October 2008 a for net change of -$38.81 or a drop of 73.7%.  On October 29th, 2010, it closed at $44.59, 15% off its high in 2008.

Now let's look at the five year price history of the metal itself on this chart:

On March 17th, 2008, gold opened just below $1025 before sinking back to $1002.80 per ounce.  On October 24th, 2008, gold briefly touched its three year low of nearly $680 per ounce before closing at $734.30.  The net change in the price of gold was -$345 from the highest price to the lowest price for a percentage loss of 33.7%.  On October 29th, 2010, gold closed at $1359.80, a gain of $334 per ounce over its previous 3 year high back in March of 2008.  That's a total percentage gain of 32.7% over its previous high.

To summarize, of the three gold mining stocks, the best performer was Agnico Eagle and the company's stock price is still 8% below its previous three year peak price.  The worst performer, Goldcorp, is down 15% off its previous three year high.  By comparison, in the same time frame, the price of the metal itself is up 32.7% over its previous three year high.  As well, during the Great Debacle of 2008, share prices for all three companies dropped an average of 72.4% compared to the price of gold which dropped only 33.7% over the same time frame.  Please note, for the purposes of this posting, I have not included the dividends paid over the three year time frame by all three companies because they are relatively insignificant ranging from 18 cents to 44 cents per share per year.

Now which would you rather own; the metal itself or paper stock?  I know what I'd pick and it isn't paper-based which, in my mind, is really the whole point of owning something shiny and yellow.