Loading in 2 Seconds...
Loading in 2 Seconds...
Bubble news - The year 2012 is almost in the books; it was a brutal time for gold miners like Iamgold (NYSE:IAG) who've seen their share prices crater while gold actually increased in value.
Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
Bubble news - The year 2012 is almost in the books; it was a brutal time for gold miners like Iamgold (NYSE:IAG) who've seen their share prices crater while gold actually increased in value. There's a serious disconnect between the two and it's questionable whether this will change anytime soon. As we head into 2013, I'll have a look at what I expect will happen to gold stocks in 2013. | INVESTOPEDIA
Exchange Traded Funds. One of the big reasons for the price of gold rising in recent years is the introduction of exchange traded funds (ETFs) like the SPDR Gold Shares (ARCA:GLD) and the iShares Gold Trust (ARCA:IAU), which allow investors to own gold bullion more easily. Prior to ETFs, most people would buy the stocks of big producers like Barrick and Iamgold benefiting indirectly from the rising price of gold. When gold prices increased the share price of gold producers tended to follow suit. Now, because investors are creating increased demand for these commodity ETFs, it's putting upward pressure on the price of gold. The big problem with what's happening is that investors are no longer buying an asset that's uncorrelated with equities. It used to be if you were worried about the performance of stocks, you'd invest in gold as the ultimate hedge.
Since 2009, the price of gold and the S&P 500 have moved almost in lock-step with each other. Therefore, an argument can be made to own the S&P 500 exclusively, eliminating any need for a discussion about gold.
The Bottom Line. While it's clear the valuation of gold stocks like Barrick are incredibly low on a historical basis, I still have to wonder if it's worth placing a bet. Many analysts feel it's only a matter of time before gold stocks participate in the growing popularity of the commodity itself. I'm not so sure. I subscribe to the Warren Buffett theory about gold that says it serves no useful purpose besides looking pretty. Eventually, people will get bored of looking at it. And even if the price keeps rising, there's no guarantee producers will be able to profit from the increase.