Gold vs. Gold Stocks

Since we've been on somewhat of a commodities kick lately, we decided to take a look at how gold has been trading relative to gold mining stocks.  The chart below highlights the ratio of the Amex Gold Miners Index to gold the commodity (gold stocks/gold).  When the line in rising, gold stocks are outperforming gold.  When the line is falling, gold is outperforming gold stocks. 

Throughout the late 90s, gold outperformed gold stocks, but that reversed in the earlier part of this decade through the start of 2004.  Since 2004, however, the two have been trading relatively inline with each other, with gold stocks lagging for about a year and a half now.  The ratio is currently just slightly above the average since 1993.  But if the trend continues downward like it did in the late 90s, gold will continue to outperform.

For those interested, below we provide the stocks that make up the Amex Gold Miners Index along with their performance year to date.

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Comments

[WorldBeta]

You may like the post I did earlier in the week on the gold/gold stocks ratio and its predictive ability to forecast future gold stock performance. . .

http://worldbeta.blogspot.com/2008/02/when-is-time-to-buy-gold-stocks.html

[Larry Nusbaum]

We can thank the explosion of monies into the GOLD & SILVER ETNs & ETFs for this.

But, still, many of the mining stocks have done very well and will eventually get pulled up, especially as Silver catches up to gold.

[G. Miki Hayden]

I track the precious metals 20 to 30 hours a week--reading voraciously plus listening to podcasts.

The trend is up because currencies are being debased. It's as simple as that. Anyone who bets against the precious metals is on the wrong end of the chart.

What has changed that will bring the precious and platinum group metals down?

Even those analysts--I mean those who actually *know* these markets--who say there will be correction--do not predict the metals will end the year at a lower level.

The run is not over, but is only picking up steam. As I said, I read everything out there every day.

I'm only a gold bug because I want to make money, not through any religious conviction.

The stocks will follow in a burst. Precious and platinum group metals are where the money is this year.

Oil is not going to 80. Where are the new supplies? Yes, it has to do with supply. We're at peak on these things--that's why they price is so high, plus certain steps the U.S. government has taken such as mandating corn ethanol.

[Oldedit]

What's gold's beta? How does it move in relation to U.S. and world GDP and with what kind of lags or anticipation?

ETFs certainly are changing the markets, making them more speculative, if that's possible. All commodity markets are very price sensitive. Gold and precious metals markets' bubbles will burst sooner than later, given the world's slowing growth rates.