FTSE 350 precious metals & gold mining: Another bearish year for gold miners

That risk was clearly on display in 2012, as three precious metals miners were among the top five worst-performing FTSE 350 shares. All three suffered from issues that were individual in nature, but symptomatic of wider industry pressures – and these dire trends look set to continue into 2013 and beyond.

Battling against the rising tide of resource nationalism in revolutionary Egypt, Centamin (CEY) emerged as a shadow of its former self after various authorities tried to force it to pay back taxes, stop it exporting gold and attempted to annul the company's mining licence. Meanwhile, violent industrial action and strong-armed police tactics at platinum miner Lonmin (LMI) sparked a wider 100,000-worker revolt in South Africa – almost bringing the entire country to its knees in the process.

This time last year, we said if investors wanted exposure to gold, they'd be better off buying a physically-backed exchange traded fund. And, as we look forward in 2013, we're tempted to repeat ourselves. The price of gold rose 7 per cent year-on-year to roughly $1,650 (£1,030) an ounce, while shares of FTSE 350 precious metals miners – including the ones that fell off the list during the year – lost 19 per cent on average. Rising commodity prices have stopped buoying all boats; mining has instead become a stockpicker's game again and the miners on offer this year are either a ragtag bunch or ludicrously expensive.

True, the gold price could always go on another spectacular run – the European sovereign debt crisis has been ominously quiet for a while now and a new flare-up here could drive a rebound in precious metals-related equities. But gold's previous three runs have all failed to break past $1,800 (£1,125) an ounce, and a third round of quantitative easing by the Federal Reserve in September didn't provide as big a boost to precious metals as had been anticipated.

Can the sector bounce back from its recent lows? Certainly. But is it really worth taking on such a disproportionately large amount of risk? We don't think so, and suggest that investors reduce their exposure to FTSE 350 gold mining equities in 2013.