Are gold stocks finally on the road to recovery? It sure looks like it.
While gold mining stocks have had more than their share of head-fakes in recent over time, the recent returns show an asset class that’s coming back to life.
Investors surely know about the extent of underperformance in gold mining stocks , but the numbers are astounding nonetheless. On October 11 (just before the current rally began), the Market Vectors Gold Miners ETF (GDX) had registered a 12-month return of -55.6%, which compared with 21.4% for the SPDR S&P 500 ETF (SPY) – an implausible gap of 77% points.
The result is that over just about any time period, gold stocks are at the very bottom of the performance charts. Even after the rebound of the past week, gold mining stocks continue to rank among the worst performers within the 99 Dow Jones industry groups in both short- and longer-term intervals:
Based on the Dow Jones U.S. Gold Mining Index through Oct. 21.
Now, the worm appears to be turning. In the one-week period that ended yesterday, gold stocks ranked second among all industry groupings with a return of 7.62%. The primary question now is whether this marks the beginning of a recovery, or if it’s just another of the many false starts that have occurred in mining stocks – most recently in the July-August rally. GDX rose 36.4% from June 26 to August 15, only to give back virtually all of those gains by mid-October.
With the sector on the move again, investors need to consider what this rebound has in common with other short-lived rallies, as well as what’s different.