* You tend to see Gold stocks overshoot Gold both to the downside and to the upside.
* To date, gold stock indices have not outperformed Gold based on multiplier/leverage as traditionally experienced
* On a 1 year performance to date basis, the returns of gold stock indices are more or less in line with Gold
So why is there a real need to invest in a specific gold stock and be subject to a possible company specific risk?
Yes, you picked the right gold stock to buy and enjoyed a higher return than both Gold and the indices, assuming of course you bought at the right time. And the more proven gold companies tended to underperform Gold.
Over the same 1 year period, RMS +29.90%, NST +26.73%, NEM +26.96% but there have been exceptions of course EVN +92.93%, GOR +79.70%
But we need to be reminded that during the Covid crash of 2020, XGD fell from 6,989 in 31Jan 2020 to 5,778 in 17March 2020, a fall of -17.32% while in 2008, it fell from 6,708 on March 3 2008 to 3,212 on 22 Oct 2008, a -52% decline.
In contrast AUD Gold fell from A$2,436 on 3Feb 2020 to A$2,590 on 1Apr2020, a gain of +6.32% while in 2008, it rose from A$1.003 on March 3 2008 to A$1,249 on 22 Oct 2008, a +24.52% gain.
It used to be that during a gold rally during an equity bull market, gold stocks would outperform Gold in a big way, and in a gold rally during an equity bear market, Gold would outperform gold stocks significantly.
Now we do not see that upside in holding gold stocks (over Gold) during the equity bull market, and as the equity market is now heading towards a bear market, we could see gold stocks underperforming Gold in an even bigger way.
Which makes holding Gold stocks (relative to or instead of Gold) a poor risk:reward proposition.
Gold stocks remain a trading play, to trade the volatility but at some point, people get caught then they hold out until they get the next chance to exit for break-even or small profit.
