The speed of the rise in gold equity prices suggests caution should be exercised in joining the rush. Since the end of December 2015, the gold bullion price has risen 22% although, unsurprisingly, gold equity prices have been highly leveraged to this bullion price move. The Philadelphia Gold and Silver equity price index, for example, has risen 105%. The ASX All Ordinaries gold equity price index has risen 57%. On Friday, the Philadelphia price index closed 71% above its 200 day moving average (see chart). Since 1985, there has only been one single day on which the deviation has been (slightly) more pronounced. In April 1987, the gold price rose 6% over a fortnight while the equity index rose 28% before tumbling 13% as the gold price was still heading some 7% higher toward its peak price of US$475/oz . As in 1987, the balance of risks, even in the event the gold price moves higher, has tilted against newly entering equity investors.
John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...
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