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FORBES: Seasonality And Sentiment Among The Many Reasons To Doubt This Rally
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One says that, over the long run, the price of gold approximates the total amount of money in circulation divided by the size of the gold stock.
Fear not, says Scott Nystrom, a former staffer at the Congressional Budget Office who became a professional investor and is now editor of the Gold Stock Strategist newsletter.
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"The good news for the price of gold is that even though the safe-haven appeal for gold has hit a plateau for now, future inflation fear is building as investors believe the U.S. and global economies have bottomed, " says Scott Nystrom, editor of the Gold Stock Strategist newsletter.
When gold prices rallied in the late summer into early fall, the gold-mining stock ETFs outperformed the gold price, but when gold prices fell, the miner ETFs underperformed, said Christian Magoon, chief executive officer of Magoon Capital, who tracks performance of ETFs, particularly gold ETFs.
Take a look at the chart from Gold Stock Analyst (GSA) depicting the price of gold going back to 1968.
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From 1948 to 1970, the real price of gold was artificially depressed as the U.S. disgorged most of the enormous stock of gold that it had accumulated during WWI and WWII.
Key for the gold market traders is if the stock market weakness continues, will gold prices start to behave like a safe-haven risk asset, or will gold continue to follow the raw commodity sector lower?
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But the answer is simple: You treat a gold stock exactly the same as any other.
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The volatility of this small gold stock has a disproportionate impact on the investment world because of its very high profile backers.
From 1984 through 2008, the performance of the Philadelphia Stock Exchange Gold and Silver Index (XAU) has historically been weak during the year of a presidential election.
If you want a piece of the gold business downstream, you always can buy stock in the nation's largest gold merchant: Wal-Mart.
The second reason is the timely listing of the first physically gold backed exchanged traded fund, the SPDR Gold Trust with the symbol GLD on the New York Stock Exchange.
Amid the rise of both stock indices the price of gold has fallen over 13%.
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Meanwhile, analysts also say gold has formed some correlation with the stock market lately, a turnabout from late summer when gold drew safe-haven demand when stocks tumbled on the European crisis.
FORBES: Gold On Defensive While Tracking Euro; Technical Weakness Also Cited
Below is a three month price history chart comparing the stock performance of GOLD, versus ABX and GG.
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The result, instead, was stagflation, and as foreign central banks converted their dollar holdings the U.S. gold stock was halved.
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That took the stock market and gold prices off their earlier highs.
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No doubt, gold shined as the stock market got dinged last month.
Stock in the gold sector including GoldCorp, Newmont Mining, and Barrick Gold have all mounted rallies north of 9% over the last month.
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Earlier in the session stock market values fell sharply and anchored gold, while the U.S. dollar rose and U.S. bond yields fell.
FORBES: FOCUS: Gold Weaker As Investors Seek Cash As Safe Haven
The few who see lower prices said dollar strength may hinder gold, along with the strength in the stock markets and better-than-expected economic data.
FORBES: Gold Survey: Survey Participants See Higher Gold Prices Next Week
The deal involved cooperation with the Schiffer and Gold family, who own about a third of the stock in 99 Cents Only Stores, and who served as chief executive officers of the company.
So gold stock investing for the typical large capitalization equity manager is a peripheral sidelight.
There is a caveat for gold stock investors in the short-term, though.
But no gold stock has traded quite like Gabriel Resources, a company listed on the Toronto Stock Exchange that is trying to develop a gold mine in Romania in which it owns a majority stake.
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