fwiw - the price of gold v gold shares

  1. dub
    33,892 Posts.
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    Just posting this FWIW.

    The price of gold is measured in US$ and is simply and easily followed.

    The price of gold stocks is generally measured by 2 indices.

    The main one is $XAU (the Philladelphia Index). This is really a gold and silver index and comprises 8 big companies (like Homestake, Barrick, Newmont, Coeur D'Alene - the lastest version I have was on 19 Nov this year and still includes Ashanti!)

    The other is HUI (the gold bugs' index - since the companies it uses are not hedged, unlike those of the XAU).

    These indices will show whether gold companies shares are going up or down in price. (as an aside, the HUI has had a marked advantage over the XAU this year). But, they also can be used to compare the increase value of gold vs gold shares.

    I recently found an article which does just that. The part I'm interested in is copied below (with author and source). But I found it hard to follow, so rewrote it for myself.

    Here's the extract:

    Until the gold mining shares move up to a point where capital can be raised and spent- a level that is usually associated with a gold/XAU ratio of about 3:1- it is hard to say that gold is 'high' no matter what price is settles out at.

    So... if you do the math you get a sense of how much upside is still available in the shares. The XAU would have to push well above 115 if gold is in the vicinity of 350... and it closed Wednesday at 77.10.
    December 21, 2002.

    and the source: -

    A Daily Review of Global Capital Market Trends
    Kevin Klombies Editor/Publisher
    Email: [email protected]
    Phone: 1-403-241-2722
    Fax: 1-403-241-5764

    and my interpretation:-

    more understandable to say that the gold stocks need to rise until the XAU (which is a measure of gold stock prices) is equal to 1/3 the price of gold itself.

    Hope that's of help.


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