Gold Stocks vs Gold — Not a Good Bet

The comments below are an edited and abridged synopsis of an article by Kelsey Williams

Earlier this year, various gold stock indices gained more than 50% in just three months. Most of the negativity associated with the sector was brushed aside and replaced by positive expectations for the future.

Gold Stocks vs Gold—Not a Good Bet | BullionBuzz
3D rendering gold bars or bullions with gold price chart background.

Of course, the 90-day rush to this year’s highs did not occur in a vacuum. The price of gold rose by 20% over the same three-month period. The mining shares, however, were considerably stronger.

Going back to the fall of 2018, the gold price increased by 30% and gold mining shares increased by about 65%. The resulting differential of more than 2-to-1 in favour 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. Williams examines the HUI to gold ratio; the XAU to gold ratio; and the GDX – VanEck Vectors Goldminers ETF.

So how does this year’s performance for gold stocks vs. gold measure up historically? Williams includes the first chart referred to above (HUI to gold ratio). It shows that this year’s outsized gains for gold stocks relative to gold is just a small blip.

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

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