The above chart shows the the price performance of the Phily Gold/Silver Index (Ticker ^XAU) versus the price gold relative to the stock price of Royal Gold (ticker RGLD). The chart is interesting for a number of reasons. First some background, RGLD is a gold company that has interests in gold production around the world. The company does not actually mine the metal but acts more as broker, securing the right to purchase gold via contract with various miners, turning around and selling it at market prices. In that sense, the company is one the purest equity plays on the price appreciation/depreciation of gold.
What is interesting about the chart is that for the three years (and actually since 2005 on longer dated charts), the price of the XAU and the gold/RGLD relative price have generally moved in tandem. At the very least each has exhibited the same generally trend. The question in my mind when looking at this chart is why recent the divergence? It is not that RGLD has significantly declined due to some company specific problems, as the stock is now at or near a new 52-week high. It is the price of the metal continues to perform better than the equity. As I stated above, RGLD is purest beneficiary of gold price appreciation. If RGLD is underperforming gold, how are the gold miners- those companies with significant operating cost, interest expenses, depreciation, etc.- outperforming?
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