Gold has shone brightly in recent years, but gold mining stocks have failed to keep up with the price of gold bullion. This chart shows Barrick Gold and Newmont Mining against the gold ETF GLD which tracks the gold price.
There are a number of reasons for this under performance. Firstly, the kind of people who buy bullion are different to those that buy gold stocks; central banks for instance do not buy gold stocks. Secondly, investors still haven't got over the Bre-X scandal even though standards on the reporting of reserves have been greatly improved since that time. It may also have something to do with the fact that many investors don't fully understand how to value mining stocks.
Valuing a gold mining company is very different to valuing a company such as Coke. P/E ratios, earnings per share, free cash flow and most of the other measures you find on the balance sheet are all largely irrelevant. Instead what really matters are just 2 numbers: