GDX vs SPX
In today’s video we examine the performance of the VanEck Gold Miners ETF (NYSE Arca: GDX) relative to the S&P 500 Index (SPX).
The objective is to determine whether Gold stocks are outperforming or underperforming the broad Stock market.
In an environment of outperformance, it would be appropriate to adopt a buy-and-hold strategy and, perhaps, use Dollar cost averaging to accumulate more mining stocks during the period of outperformance.
During the Gold stock rally from 2002 through 2012, Richard Russell recommended to his newsletter subscribers that they employ exactly that strategy. Subscribers who followed his advice did quite well without having to trade in-and-out of their mining stocks for the 10-year period.
As the bull market progressed, Mr. Russell occasionally shared with his subscribers that he was buying additional mining stocks and identified which ones he was purchasing. Towards the end of the bull market, he let subscribers know that it was time to sell mining stocks and redeploy the money into other investments.
In the first chart examined in the video we look at four years of GDX vs SPX. During this time period mining stocks are mostly underperforming the broad market, although the most recent six months shows outperformance.
Next, we switch to the NYSE Arca Gold BUGS index vs SPX in order to examine how the mining stocks performed during the 2002 to 2012 period relative to the broad Stock market. GDX only started in May 2006 while the HUI index goes all the way back to March 1996.
During the recent 4-year period the HUI vs SPX looks no different than the chart of GDX vs SPX. This suggests that substituting the HUI index for the GDX ETF hasn’t affected the objective of this exercise. In other words, we can confidently use the HUI vs SPX to look at outperformance and underperformance of the mining stocks.
The third chart in the video shows 25+ years of data and dramatically demonstrates how mining stocks outperformed the broad Stock market during the 2002 to 2012 period. The contrast between this outperformance and today’s underperformance is striking.
Conclusions
In the current environment of Gold stocks underperforming the overall Stock market, the Buy and hold strategy is not recommended. Basically, we are in a stock picker market where the average investor is unlikely to make money.
For investors who desire exposure to the Silver and Gold mining stocks, it is probably best to stick with royalty and streaming companies. These companies are insulated from the significant costs and risks that the mining companies face directly.
Watch the video for an in-depth discussion of how the mining stocks are performing relative to the overall Stock market. And, more importantly, what this performance means for us as Precious metals investors.