Gold miner stocks and exchange traded funds have continuously lagged behind physical gold prices. However, as spot gold beings to move higher, producers may see their profit margins widen.
SPDR Gold Shares ETF (NSYEArca: GLD) is up 1.4% year-to-date, whereas the Market Vectors Gold Miners ETF (NYSEArca: GDX) is down 14.0% year-to-date.
Spot gold prices recently dipped back below their 50-day resistance levels to trade under $1,600 an ounce.
Loose monetary policies and deficits in the U.S. and Europe will keep their currencies depressed, allowing gold to potentially shine, Live Trading News reports.
“Loose monetary policies, with a scope for more aggressive balance sheet use in the US and Europe, will keep real [interest]rates in most reserve currencies low (or negative) during 2012,” according to a Merrill Lynch note. “We continue to believe that this will allow investor demand to remain strong and prices to reach our $2,000 an ounce target by the end of the year.”
However, gold will have to first breach a critical level before gaining back its momentum.
“It looks like $1,630 is pretty much a brick wall, while on the downside, $1,550 is equally strong support. So unless something extraordinary happens, we will be stuck in this range,” MKS Finance head of trading Afshin Nabavi said, International Business Times reports. “I think we need a confirmation that gold is really going somewhere, and that will only happen when it gets above $1,630, only then will we have some investment come back into the market.”
According to an earlier Wall Street Journal report, physical gold has outperformed gold stocks in the last six out of seven years, with gold prices jumping 471% since 2000, compared to the S&P/TSX Global Gold Index’s 233% performance.