Served as lead indicator for last year's decline, notes CLSA's Wood
Want to know where gold prices are headed? It might make sense to track the stocks of gold mining companies. In the recent past, these have served as good indicators, says CLSA’s Chief Equity Strategist Christopher Wood.
“The action in gold mining stocks is serving as a useful lead indicator for the price of bullion, with Newcrest Mining, for example, up 30 per cent year-to-date. Gold mining stocks were certainly a lead indicator for the decline in gold prices last year,” Wood said in his periodic ‘Greed and Fear’ report, released earlier this month.
The report added those who had taken contrarian calls on gold would have been well rewarded. “What is clear is anyone who wanted to construct a truly ‘contrarian’ portfolio, positioned the opposite to the consensus at the beginning of 2014, would have included a large weighting, in gold mining shares, as well as a large weighting in 30-year Treasury bonds,” it said.
An equal-weighted index comprising the top 15 gold mining companies in the world, compiled by the BS Research Bureau, showed in 2014, gold mining companies gained twice as much as gold prices. The price of gold has risen 10.63 per cent this year—from $1,205.65 an ounce at the beginning of the year to $1,333.9 on Monday. During the same period, the index of gold mining companies rose 19.16 per cent.
When gold prices fell, gold mining companies also fell more than the commodity. The index of gold mining companies fell 8.19 per cent in the last quarter of 2013, compared with a 6.37 per cent fall in gold prices.
Though import duty increase had reduced import through official channel, it fuelled smuggling of the precious metal to India