In Monday’s DecisionPoint Trading Room video, we were asked why we cover Gold Miners (GDX) as well as Gold (GLD). There are two reasons:
Some people prefer to own the commodity, Gold, and others prefer to own an operating company that benefits from the price of Gold, such as Gold Miners. For a profitable mining company, when Gold increases in value, most of the increase goes straight to the bottom line because cost of goods is already paid for.Other people prefer Gold Miners because they may pay a dividend, and typically they out-perform Gold by a lot. That applies to movement in both directions. That is to say, Gold Miners will typically go up faster than Gold, but Miners also go down a lot faster than Gold.
This morning, I heard a money manager who asserted that people who own Gold should be selling it because, while Gold has been making all-time highs, Gold Miners need to advance another +50% to equal its 2011 all-time highs. The chart confirms that, but there is more to consider in this regard.
Here is a performance chart comparing the two from the 2011 top to the present, and we can see that GDX has underperformed GLD by about half.
But let’s look at just the decline from the 2011 top to the 2015 lows. We can see that GDX fell at an accelerated rate, driven by the negative sentiment associated with GLD’s decline.
The chart showing the performance from the 2015 lows shows that GDX has out-performed GLD by a lot, as we would expect; however, GDX took a -45% hit in 20 because of the securities bear market. Also, GLD had a rather tedious two-year sideways episode in 2020 to 2022, which would have been uninspiring to potential Miners investors. Nevertheless, GDX is still out-performing GLD by a considerable amount.
Conclusion: While the assertion that GDX underperformance since the 2011 all-time high justifies avoiding Gold, I think the premise does not consider all the evidence. Most important was the 2022 hit, which drove GDX down over -2.5 times more than GLD. That had less to do with Gold’s prospects than it did with general bear market panic.
Introducing the new Scan Alert System!
Delivered to your email box at the end of the market day. You’ll get the results of our proprietary scans that Erin uses to pick her “Diamonds in the Rough” for the DecisionPoint Diamonds Report. Get all of the results and see which ones you like best! Only $29/month! Or, use our free trial to try it out for two weeks using coupon code: DPTRIAL2. Click HERE to subscribe NOW!
Learn more about DecisionPoint.com:
Watch the latest episode of the DecisionPointTrading Room on DP’s YouTube channel here!
Try us out for two weeks with a trial subscription!
Use coupon code: DPTRIAL2 Subscribe HERE!
Technical Analysis is a windsock, not a crystal ball. –Carl Swenlin
(c) Copyright 2024 DecisionPoint.com
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
DecisionPoint is not a registered investment advisor. Investment and trading decisions are solely your responsibility. DecisionPoint newsletters, blogs or website materials should NOT be interpreted as a recommendation or solicitation to buy or sell any security or to take any specific action.
Helpful DecisionPoint Links:
Trend Models
Price Momentum Oscillator (PMO)
On Balance Volume
Swenlin Trading Oscillators (STO-B and STO-V)
ITBM and ITVM
SCTR Ranking
Bear Market Rules
