The price of gold went up 25 per cent in 2010, driven by fears of declining currency value.

That should be good news for investors. However, many large gold stocks didn’t enjoy similar gains.

Goldcorp Inc., for example, rose only 4 per cent in the past year (from $42.49 on Jan. 4, 2010, to $44.27 on Jan. 4, 2011).

So, why are some gold stocks lagging as bullion prices are surging?

I asked a couple of fund managers what was going on.

Donald Coxe, chair of Coxe Advisors LLP in Chicago, is adviser to the Coxe Commodity Strategy Fund, listed on the Toronto Stock Exchange.

He says there’s a fear that gold mining companies could have problems replacing their production in the future.

Nevada is almost tapped out. Not much exploration is going on in Canada. And the areas where gold may be found – such as Mexico and Colombia – carry political or operating risks.

There’s also concern about the contracts that miners such as Goldcorp entered into in the past 10 years with Silver Wheaton Corp.

Silver Wheaton agreed to buy their silver deposits and pay for them up front, giving companies more capital to develop the gold mines.

The price of silver was languishing at about $4 (U.S.) an ounce when these contracts were signed. It hit $10 a year ago and is at almost $30 now.

“Silver went up more than gold did,” Coxe points out. “There’s a sense that the contracts were too low. The gold miners removed their silver hedges in exchange for up-front cash. They were giving it away.”

Finally, there’s a sense that costs are out of line for gold mining companies. They have to pay more for oil used in exploration vehicles – and even for their giant tires.

In 2008, Barrick Gold lent $35 million (U.S.) to a Japanese tire maker to help finance a plant expansion. It hoped to save money on tires and get around a worldwide shortage.

Nick Barisheff is president of Bullion Management Group Inc., which offers mutual funds that allow investors to hold bullion.

He points out that gold mining stocks dramatically outperformed bullion during the stock market boom from 2002 to 2008.

Since then, investors have been moving to wealth preservation. They’re now less interested in speculating on mining stocks.

“Gold, silver and platinum aren’t rising as much as all the major currencies are declining,” he says.

“How low can the currencies go? How much money can central banks print? It’s infinite.”

The price of gold might stabilize if governments were to stop boosting the money supply in attempts to avoid a sovereign debt crisis, Barisheff says. But he doesn’t see that happening.

Coxe, who holds bullion as well as stocks in his funds, agrees with Barisheff on bullion’s role.

“Everyone should invest in gold. Don’t do it for greed. Do it to protect what you have. Do it to diversify your portfolio.

“You’re buying some insurance against the unknown. It’s a store of value and should be treated as such.”

A rule of thumb that both managers endorse: Overweight gold mining stocks if you’re optimistic about the stock market. Meanwhile, hold gold bullion if you feel that the stock market could face a sharp decline.

Ellen Roseman writes about personal finance and consumer issues. You can reach her at [email protected].