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Asked a question 6 months ago

Can someone explain to me why on a day as today when gold is marginally up, gold miners sticks are down nearly 4%.

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Gold is a commodity/currency
Gold miners are equities

They are 2 entirely different asset classes.

 

So I think the distinction @Seahyung Park8 mentioned is key. 

There is obviously a correlation between them because those gold miners are selling gold. There are several things to consider though that can provide a background to the "why" behind this. First, the supply and demand of these gold mining companies can be different and have different things that affect them. For example, when the lockdowns occurred, some of these gold mining operations had a slower time getting back up and running to full production with the new shift. The majority of them bounced back totally fine but stuff like that can influence their stock price. Second, these might fluctuate depending on the different funds they are in. So if there are large index funds that hold gold miner stocks and they are down then gold miners could have that downward pressure even if gold is up. A good case of this is Barrick gold in the S&P. Third, the gold mining stocks are still discounting the future. John Burbank did a great video where he was talking about how he was long commodities coming out of 2009. He saw the price of the commodities continue to climb but then saw the stocks connected to those commodities begin to fall. Why? Because the stocks were discounting something they saw in the future price. He got out just before the downward movement in commodities. So is this what is happening with gold? Probably not because the 4% move is not much BUT how would you find out? You would need to run a correlation analysis between the price of gold and the gold miners. Figure out what a normal fluctuation of gold miners is around the movement of the price of gold. Then if you see gold miners significantly divert from the price of gold, you should do more research into why. If you can figure out the "why" then you can make a decision to either go long/short or you could do a trade to make the difference between the spread between gold and gold miners. 

So just keep an eye out for those correlations and potential divergences/convergences. 

Christopher Moir
Maker of random charts that seem important 2 years later

I think a couple of people stole my line "Gold companies are not gold, they are companies that happen to mine gold". There is an important distinction we have to make not all portfolio managers have the ability to buy gold, therefore they buy the equities as a proxy for the gold price. Gold equity prices have been amazing since March as has tech, there has been a rotation beginning out of tech. I think the rotation has also already started in gold equities. The hardest part is to look through the lens of the general market not your personal lens. I am a long-term gold bull, but I am currently short gold futures. The gold miners were a fantastic trade, in a sea of shit that was post March 2020. The reality is people who are not long term bullish are taking profits. Right now there are other trades that look better, gold and the miners have had a fantastic year.

Real rates are moving less negative. US10Y looks to be moving up and Oil after a crazy 2020 looks to be making a move higher. This is the real rates trade. Maybe some people are taking their profits from gold miners and buying cheap oil producers?

TL:DR many of the people that moved into miners were not gold bulls, they just had to put money somewhere when the world was falling apart.

Can someone explain to me why on a day as today when gold is marginally up, gold miners sticks are down nearly 4%.

Further to @Seahyung Park8 and @Jeremiah S7 's posts, plotting GDX and XAUUSD (gold in USD terms) on the weekly:

Can someone explain to me why on a day as today when gold is marginally up, gold miners sticks are down nearly 4%.

And Daily:

Can someone explain to me why on a day as today when gold is marginally up, gold miners sticks are down nearly 4%.

 

Doesn't look too bad (notice how badly GDX got smashed in Mar compared to XAUUSD!) 

@Violeta Daskalova9 

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