Gold Stocks - Wishing, Hoping, And Losing

Gold Stocks - Wishing And Hoping

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. Below is a one-year chart of GDX...

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

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

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 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.

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 underperform 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.