Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Stocks Vs Gold – Not A Good Bet

Commodities / Gold & Silver 2019 Dec 15, 2019 - 05:54 PM GMT

By: Kelsey_Williams

Commodities

Earlier this year,  various gold stock indices (XAU, HUI, GDX) gained more than fifty percent in just three months. Most of the negativity associated with the sector was brushed aside and replaced by positive expectations for the future.

Of course, the 90-day rush to this year’s highs did not occur in a vacuum. The price of gold rose by twenty percent over the same three-month period. The mining shares, however were considerably stronger.

Going back to the fall of 2018, the price of gold increased by thirty percent and gold mining shares increased by about sixty-five percent. The resulting differential of more than 2-to-1 in favor of the mining shares lends possible credence to the argument for shares over bullion.


Nevertheless, when we dig a bit deeper, we see a different picture. See the chart below…

HUI to Gold Ratio (source)

This interactive chart shows the month-end ratio of the NYSE Arca Gold Bugs Index (HUI) to the price of gold bullion back to 1996. The 6 month moving average has been added to smooth out volatility and show the longer-term trend.

Looking at the chart above, we can see that gold stocks have declined much more severely than the price of gold bullion.

The potential advantage of owning gold mining stocks rather than physical gold, turned into a horrible disadvantage. The price of gold declined by forty-five percent but gold stocks dropped by more than eighty percent.

In other words, gold stocks dropped by nearly twice as much as gold bullion after gold peaked in 2011.

The results were not that good before that, either. Except for a brief three-year period between 2000-03, owning physical gold was less risky and provided better overall returns.

Below is a second chart, this one of the XAU gold stock index…

XAU to Gold Ratio (source)

This interactive chart shows the month-end ratio of the Philadelphia Gold and Silver Index (XAU) to the price of gold bullion back to 1983. The current month shows the latest daily closing values.

As can be seen, going back as far as 1983, the presumed advantage of owning gold shares over physical gold, does not appear to be evident.

Looking at the first chart again, we see that the HUI to gold ratio is at the same level as it was twenty years ago, when gold was at $275 per ounce. And, it has failed to exceed the level it reached three years ago in the summer of 2016.

Since that point in the summer of 2016, the price of gold has risen by as much as fifteen percent earlier this year. Currently, gold is up ten percent from that point.

Gold stocks, on the other hand, failed to even match their previous high, and are currently about thirteen percent lower than their peak levels of 2016. This can be seen on the chart below…

GDX – VanEck Vectors Goldminers ETF (source)

So how does this year’s performance for gold stocks vs. gold measure up historically? Below is the first chart above (HUI to Gold Ratio), again. This time the current year, 2019, is labeled. As you can see, this year’s outsized gains for gold stocks relative to gold is just a small blip…

Gold stocks have been a horrible, losing investment for decades. Compared to physical gold, their results are pathetic.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

By Kelsey Williams

http://www.kelseywilliamsgold.com

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2019 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 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