2011-06-18

The gold price, close this week at $1,539 per ounce

Gold stocks climbed Friday as the Market Vectors Gold Miners ETF (GDX) rose $0.43, or 0.8%, to $52.21 per share. The advance in Gold stocks and the GDX was fueled by a rebound in gold bullion, which jumped from $1,528 toward $1,540 per ounce this morning alongside the broader commodities complex. Gold stocks in Canada moved higher as well with the S&P/TSX Global Gold Index rallying 1.0% alongside the GDX. The Philadelphia Gold & Silver Index (XAU), another closely followed composite of gold stocks, jumped 0.7% to 190.76.

In spite of today’s gains in the gold stocks sector, the GDX has continued to underperform the yellow metal in June. On a month-to-date basis, the GDX has fallen 8.5%, compared to a 0.1% gain for gold bullion. Year-to-date, the disparity between the gold stocks ETF and gold is even larger, at -15.3% versus 8.1%.

As a result of the underperformance, the ratio of the price of gold to the GDX has reached a historically high level. This development has caught the attention of many prominent investors, several of whom have recently adding to their positions in the gold stocks sector. George Soros, the legendary investor who ran the Quantum Fund with Jim Rogers in the 1970s, recently raised his holdings in several large-cap gold stocks – including Barrick Gold (ABX), Eldorado Gold (EGO), and Goldcorp (GG).

Dr. John Hussman, the founder of The Hussman Funds, reported in his most recent Weekly Market Comment that he raised his holdings in gold stocks to 18%. “In contrast to the broad stock and bond markets,” Hussman wrote, “our measures of prospective return/risk in gold shares has surged, with falling long-term yields, negative real interest rates, weakening economic statistics and a very high gold/XAU ratio all provoking a distinct jump in our expected return/risk measures for gold stocks.”

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