VANCOUVER, May 7: New gold investment products are luring money away from gold mining shares, weighing down stocks’ performance, a Canadian miner warned on Friday. Sean Boyd, Agnico-Eagle Ltd.’s chief executive, said that traditional gold stock investors are frustrated that the higher bullion price is not being reflected in miners’ earnings, mostly because rising costs are eating into margins.

For the first time investors have a choice. They can go out and buy the ETFs and play gold, Boyd said. I think that is affecting the multiples (of gold shares). We are not getting as an industry the multiples that we used to get, he said at the gold and base metal miner’s annual meeting in Toronto.

Launched some two years ago, ETFs, or exchange-traded funds, have made it easier for the man-in-the-street to invest in actual gold metal. The funds offer investors a paper share in a bar of gold and are traded on major stock exchanges around the world. The bullion is held in trust by the funds, meaning investors don’t have to worry about the storage and transportation of gold bars — issues that previously hampered investment.

By March this year gold ETFs were holding 260 tons of gold in trust, mostly as institutions looking for new ways to invest money in high-flying commodities tried the product.

Despite a 26 per cent rise in the gold price over 2003 and 2004, North American gold miners’ margins shrank to 9 per cent in the last quarter of 2004 from 17 per cent the year before, according to National Bank Financial.

The main blow came from higher costs as prices for fuel, power and other mining items rose and a weaker US dollar hiked costs for miners’ working in non-dollar economies.

Even so, Boyd remains sanguine about investments in small- and medium-sized gold producers, like Agnico-Eagle. I think we can provide something that the ETF doesn’t give and that is good leverage, Boyd said explaining that the stock prices of smaller and intermediate-sized miners could spike up if they made an exciting new gold discovery.

By comparison, ETFs are hostage to the gold price, which also to varying degrees drives gold shares. Discoveries were also unlikely to catapult the stocks of large gold producers unless they were spectacular because these miners need to find millions of ounces of gold a year just to maintain output.

Gold shares, as measured by the Philadelphia Gold and Silver index and the Amex “Gold Bugs” index, have fallen respectively 14 per cent and 15 per cent this year. The gold price is down about 3 per cent at $425.90 on Friday.—Reuters