Every once in a while, you’ll hear gold advice about how mining stocks trade differently than gold itself. What they’re usually pointing out is that gold itself is not as volatile as the mining stocks. For example, if gold moves one percent, then the miners will move more. You hear this a lot in lessons, YouTube videos, and at the bar on Friday nights if you hang around anyone who trades precious metals.
But is it really true? Do the miners really move more than gold? Today let’s look at the junior miners and see if the conventional wisdom holds true.
Here is a chart of GDXJ vs GLD over the past 3 months. GDXJ is an unleveraged ETF that tracks junior gold mining stocks. (GDX tracks the senior miners, add the J for the juniors. Easy to remember, right?) GLD is the biggest unleveraged ETF for gold itself. The bars are GDXJ, the line is for GLD. They are indexed to zero at the start, and the scale is percent-change from there so we can compare them. Here goes –
What we see is that the bars and the line move generally in the same direction. When the line (GLD) heads up, so do the bars (GDXJ). And vice versa.
What’s interesting is when the line changes direction, the bars respond by moving more. Especially in the middle of the chart. When the line goes up, the bars go UP. When the line heads down, the bars head DOWN.
So yes, Virginia, the old advice is true, at least for the junior miners. And we can see in this chart how different the size of the moves can be.