Gold Stocks – Wishing And Hoping (And Losing)

Analyst, Author, and Owner of Kelsey's Gold Facts
December 30, 2021

As is the case with both silver (see Waiting On Silver) and gold, so too has the waiting game proved to be unprofitable for gold stocks. Wishing and hoping for better results doesn’t change the reality of losing (losing – “failing to gain or retain; being deprived of”).

Below is a one-year chart of GDX

At its recent low of 29, the GDX index of gold mining shares was down twenty percent from where it began the year.

Dreams of outsized gains for gold stocks were dashed early in the year as the GDX index fell by that same amount in the first two months of 2021 after having risen all too briefly to almost 39 on an intraday basis on the second trading day of the year.

From its low in early March, GDX rose almost thirty percent in less than three months to a high of 40. After struggling for a couple of weeks to break through that level, it started back down and dropped twenty-seven percent to its low for the year in late September.

While the one-year chart above looks bad enough on its own, the performance for GDX takes on additional negativity when viewed on a longer-term basis. Below is a two-year chart of GDX… 

Here we can see an established pattern of lower highs and lower lows dating back to the post-Covid peak of 45 in August 2020.

For some additional perspective, here is a long-term chart of GDX dating back to mid-2006…

The entire range of trading in GDX for the past two years has taken place at a level that is 40-50 percent lower than during 2010-11.

Similar patterns and percentages apply to the XAU index of gold mining shares. Below is a long(er)-term chart of XAU dating back to 1984… 

The trading range for gold stocks in general is the same today as it was in 2006-07.

What makes all of this worse is that gold stocks continue to underperform gold itself. Our final chart below is the ratio of the XAU (Gold Stocks) to Gold Ratio

The current XAU to Gold ratio is .07 which is down twelve percent from the .08 mark in August 2020.

On a long-term basis, gold stocks continue to underperfom physical gold. There is no evidence historically to support claims for anything different.

CONCLUSION 

Infrequently, gold stocks can be a good short-term speculation. Historically, though, gold stocks are a lousy investment. (also see Gold Stocks Continue To Disappoint)

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!

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Kelsey Williams has more than forty years experience in the financial services industry, including fourteen years as a full-service financial planner. His website, Kelsey's Gold Facts, contains self-authored articles written for the purpose of educating and informing others about gold within a historical context. In addition to gold, he writes about inflation and the Federal Reserve.

Kelsey 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! 

Kelsey Williams is available for private consultations, public speaking, and interviews at [email protected]


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