Gold equities have suffered over the last 20 or so years, having lost their historic P/E premium since the Great Recession (GFC) in 2008, see middle chart. We have believed part of the reason for this loss in premium was the introduction of gold ETF's. We argued at the time that gold ETF's would inevitably eat into investors’ appetite for gold equities. (Prior to gold ETF’s a gold investor was faced with the choice of buying bullion from a bullion bank/ shop or buying gold equities. The introduction of gold ETF's changed that choice dramatically!)
As of late the ratio of gold equities to gold bullion has found a bottom, as both charts herewith highlight. The impact of gold ETF’s on gold equities has run its course, in other words – we are at a new normal!
Indeed, the bottom chart of XAU equities to gold bullion suggests that the trend in the ratio is upward sloping – that gold equities might again be gaining some favor over gold bullion. If so, and since we are quite bullish on the gold price for the coming years, we are very inclined to overweight gold equities versus gold bullion in the gold portion of our portfolio.
Excerpt from the April 7, 2023 Gold Monitor
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