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Bob Carey
Chief Market Strategist
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  Gold investors are bypassing the miners for the metal
Posted Under: Commodities
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  1. While the price of gold bullion is up approximately 15.7% over the past 12 months (as of 3/23/12), the Philadelphia Gold & Silver Index of mining companies is down 17.1%.
  2. Gold bullion has enjoyed a decade-long bull market. The price has surged nearly five-fold from $297 per ounce (3/22/02) to $1,662 (3/23/12). Gold pundits argue that the price of gold bullion can go higher.  
  3. Some cite the metric that the price today would need to approach $2,500 per ounce to equate to its $850 price (all-time high prior to 2008) in January 1980, adjusted for inflation. 
  4. They often ground their arguments by citing future inflationary pressures from the huge budget deficits run by the U.S. federal government and easy monetary policy from the Federal Reserve.
  5. In addition to inflation, demand for gold bullion can come from several sources, including central banks, jewelry purchases (accounts for 70% of total gold demand) and geopolitical instability.
  6. The largest ETF is the SPDR Gold Trust (GLD), with assets under management totaling $73.6 billion. It is designed to track the price of gold bullion.
  7. Investors looking for some exposure to gold over the next few years may want to consider allocating a portion of it to gold mining companies, based on their valuations.
  8. The current price-to-earnings ratio on the Philadelphia Gold & Silver Index is  12.06, less than half its five-year average of 25.31, according to Bloomberg. 
Posted on Friday, March 23, 2012 @ 4:18 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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