Best of the Week
Most Popular
1.The Brexit War! EU Fearing Collapse Set to Stoke Scottish Independence Proxy War - Nadeem_Walayat
2.London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - Nadeem_Walayat
3.The BrExit War, Game Theory Strategy for What UK Should Do to Win - Nadeem_Walayat
4.Goldman Sachs Backing A Copper Boom In 2017 - OilPrice_Com
5.Trump to Fire 50 US Cruise Missiles To Erase Syrian Chemical Attack Air Base, China Next? - Nadeem_Walayat
6.US Stock Market Consolidation Time - Rambus_Chartology
7.Stock Market Investors Stupid is as Stupid Goes - James_Quinn
8.Gold in Fed Interest Rate Hike Cycles- Zeal_LLC
9.The BrExit War - Britain Intelligence Super Power Covert War With the EU - Nadeem_Walayat
10.Marc Faber: Euro to Strengthen, Dollar to Weaken, Gold and Emerging Markets to Outperform - MoneyMetals
Last 7 days
Le Pen Shifts Political Landscape- The Rise of New French Gaullism  - 24th Apr 17
IMF Says Austerity Is Over - Surplus or Stimulus - 24th Apr 17
EURUSD at a Critical Point in Wave Structure - 23rd Apr 17
Stock Market Grand Super Cycle Overview While SPX Correction Continues - 23rd Apr 17
Robert Prechter Talks About Elliott Waves and His New Book - 23rd Apr 17
Le Pen, Melenchon French Election Stock, Bond and Euro Markets Crash - 22nd Apr 17
Why You Are Not An Investor - 22nd Apr 17
Gold Price Upleg Momentum Building - 22nd Apr 17
Why Now Gold and Silver Precious Metals? - 22nd Apr 17
4 Maps That Signal Central Asia Is at Risk of War - 22nd Apr 17
5 Key Steps For A Comfortable Retirement From Former Wall Street Trader - 22nd Apr 17
Can Marine Le Pen Win? French Presidential Election Forecast 2017 - 21st Apr 17
Why Stock Market Investors May Soon Be In For A Rude Awakening - 21st Apr 17
Median US Household’s Wealth Has Declined by 40% Since 2007 - 21st Apr 17
Silver, Platinum and Palladium as Investments – Research Shows Diversification Benefit - 21st Apr 17
U.S. Stock Market and Gold, Post Tomahawks and MOAB - 21st Apr 17
An In Depth Look at the Precious Metals Complex - 20th Apr 17
The Real Story of China’s Strong First-Quarter Growth - 20th Apr 17
3 Types Of Life-Changing Crisis That Make You Wish You Had Some Gold - 20th Apr 17
The Truth is a Dangerous Thing - 20th Apr 17
2 Choke Points That Threaten Oil Trade Between Persian Gulf And East Asia - 20th Apr 17
Gold’s Next Downside Target Is Around $700… Even if It Breaks Up First - 19th Apr 17
SPX May be Completing its Corrective Pattern - 19th Apr 17
Silver Production Has “Huge Decline” In 2nd Largest Producer Peru - 19th Apr 17
Soothing East Asia's Nerves as Trump's Administration Reaffirms US Power in Asia-Pacific - 19th Apr 17
The Brexit War - Article 50 Triggered, General Election 2017 Called - Let the Games Begin! - 19th Apr 17
Plungers Big Trade - The Oil Short - 18th Apr 17
The Smart Money Is Piling Into Regenerative Medicine - 18th Apr 17
If You Invest In Stocks Now, Expect No More Than 3% Returns In The Next 20 Years - 18th Apr 17
Maps That Explain Wars In The Middle East And North Africa - 18th Apr 17
Theresa May Calls Snap BrExit UK General Election Capitalising on Crippled Labour Party - 18th Apr 17
Is US Economy at the Cusp of the Next Recession? or Maybe Worse? - 18th Apr 17
US Housing Market Mortgage Delinquency Rates Increase & 3X ETFs - 17th Apr 17
Trump US North Korea First Strike Smoke and Mirrors, China is the Real War Target! - 17th Apr 17
Now Is The Time To Invest In Canada’s Marijuana Boom - 17th Apr 17
History of the Post WWII Crude Oil Price From a Technical Perspective - 17th Apr 17
Stock Market Bounce Coming? - 17th Apr 17

Market Oracle FREE Newsletter

50+ Global Markets. Today's Top Opportunities. (April 12-20)

Gold Bullion Performance Against Gold Stocks

Commodities / Gold and Silver 2010 Jun 05, 2010 - 01:46 AM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleGold for Defense. Gold Stocks for...?
Gold stocks stopped beating gold in 2005. They've lagged it since 2007...
 
IF GOLD'S GOING UP, then gold-miner stocks will rise further and faster. Right?


"Gold mining stocks [are] a more risky but more profitable way to invest in gold," says Alix Steel at TheStreet.com in New York.

"Gold bullion is defense. On the offensive side," agrees Charles Oliver of Sprott Asset Management in Toronto, "if you want capital gains, [you want] gold stocks.

"We're in a bull market in gold and, generally speaking, most of the time gold stocks will outperform bullion."

Thing is, that period of time – "most", as Oliver says – sits oddly inside the last 10 years of rising gold prices. TV football pundits would call it a game of two halves (football being a game of foot and ball, of course, rather than helmets, armor and cheerleaders).

Because over the first half of the bull market to date, gold stocks far outperformed the metal. Over the second half, in contrast, gold has matched and then beaten both the leading gold-equity funds and stocks, on average – and with significantly lower volatility, too.

XAU              Philadelphia Gold & Silver stock index
HUI               Amex Gold Bugs stock index
USERX          U.S. Global Investors Gold and Precious Metals Fund
USAGX         USAA Precious Metals and Minerals Fund
TGLDX         Tocqueville Gold Fund
INIVX            Van Eck International Investors Gold Fund
MRCGLDA LN Equity        Blackrock Gold & General (£)

Take from this what you will, but between 2000 and 2005, gold priced in Dollars rose 55%. The HUI index of 16 leading US-listed mining stocks added 195% (excluding dividends). Tocqueville Asset Management's Gold Fund rose 190% by value.

From 2005 to end-May 2010, however, gold rose 183%, while the Tocqueville fund rose 177% and the HUI index of producer stocks rose 116%.

Sure, there were better-performing gold stocks (Randgold's Nasdaq listing, GOLD, has more than quintupled in price since Jan.'05). There were better-performing funds over the last five years too, including the USAA Precious Metals and Minerals Fund (USAGX) and Van Eck International's Investors Gold Fund (INIVX).

But the apparent "leverage" to gold for which producers and actively-managed funds are recommended has evaporated over the second half of gold's 21st century bull run so far. More telling still, it's actually worked against gold equities and funds amid the financial crisis' greatest points of stress.

"When you buy or track the underlying metal – rather than investing in producer stocks – you don't get management risk, political risk, corporate tax, permitting risks and so on," said ETFSecurities' Scott Thompson this week.

You could say he was talking his book. (So are we here at BullionVault, naturally.) But what you do get when you buy gold – and what isn't offered by mining stocks or actively-managed mining-stock funds – is just a lump of metal, used to defend and store value, almost universally, for perhaps 7,000 years or more. That rare, shiny lump is as far as you can get from the growth-driven aims of most financial analysts and journalists today. Despite the worst recession and loss of global investment wealth since the 1930s, they'll still look for growth – and juiced-up profits – even from an unyielding lump of gold.

How much further might gold stocks and gold diverge from here? It might well depend on just how much deflation – capital destruction and "negative growth" – still lies ahead.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife