Gold Stocks: Where Is The Leverage?

It’s often said that gold stocks have a leverage effect on a rising gold price.

In this article we will have a look at some charts, to see if this statement is true.

Let’s start with the XAU index (Philadelphia Gold & Silver Index). For more information about this index, please click here.
From 2001 to 2008, the XAU index traded in line with the gold price, as the XAU-to-Gold ratio as relatively flat.
Once the financial crisis hit the markets, the XAU index started to underperform the gold price big time. The XAU stocks are now cheaper compared to gold than in 2001, the beginning of this bull market.

Chart courtesy

However, the HUI index however outperformed gold from 2001 to 2011. From 2001-2008, it outperformed big time.
As the crisis hit the markets, these shares got dumped hard as well, causing the ratio to drop. But still, over the last 10 years, the HUI index outperformed the Gold price by more than 120%:

Chart courtesy

As those two indexes consist of different stocks,  it seems that it all depends on WHICH stocks are part of the index to validate the above statement.

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