This year has proven to be somewhat of a difficult year for gold, as this precious metal has struggled to maintain its footing amidst global economic uncertainty. It seems as though eurozone turmoil and a disappointingly slow road to recovery for the United States has become commonplace in today’s market. Nearly everyday, investors are bombarded with headlines from around the globe, shedding light on the latest sour economic reports and the fragility of the global financial market. Although gold is often coveted as a safe haven investment during hard times, the precious metal seems to have lost its way so far in 2012 [see also Were Gold and Silver Manipulated Alongside LIBOR?].
In general, gold is the top choice for safe haven investments since historically the asset has exhibited a negative correlation to the stock market: when the equities market takes a tumble and economic uncertainty is high, investors often shift their assets towards the safer and reliable yellow metal. In 2011 this theory held true, as gold featured a correlation of -0.64 to the S&P 500. But as the chart below depicts, this year investors have witnessed a new phenomenon in the gold market.
Currently, gold is exhibiting a 0.13 correlation to the S&P 500, making many investors question whether or not the precious metal is really a safe haven asset. Despite this unusual behavior, some Gold ETFs have managed to post modest gains amidst this year’s volatile environment [see also Three Reasons Why Gold Is Overvalued].
Commodity Gold ETFs in First Place
Both physically-backed and futures-based gold ETFs have proven to a be a bright spot so far in 2012, with each fund landing in positive territory on their year-to-date returns. Because these commodity ETPs invest in either physical bullion or futures contracts on gold, they generally reflect the spot price or the underlying contract on gold. And with gold prices kicking off the year with a strong start, several of these products have performed quite well:
- DB Gold Double Long ETN (DGP): 4.41%
- COMEX Gold Trust (IAU): 3.87%
- Ultra Gold (UGL): 3.72%
- Physical Swiss Gold Shares (SGOL): 3.65%
- SPDR Gold Trust (GLD): 3.65%
Explorers and Miners Left in the Dust
Gold explorers and miners, however, have fallen on hard times this year, as rising production and operating costs continue to hammer the industry. Recently, the world’s largest gold producer, Barrick Gold Corp. (ABX), posted relatively poor second-quarter earnings, citing that the drop in profits was largely due to the fact that average costs of producing an ounce of gold have ballooned, as have capital costs. And although gold prices have fared well, the uptick in the precious metal has not been able to compensate for gold miners’ and explorer’s rising costs:
- Daily Gold Miners Bull 3x Shares (NUGT): -51.15%
- Global X Gold Explorers ETF (GLDX): -28.19%
- Market Vectors Junior Gold Miners (GDXJ): -20.45%
- Market Vectors TR Gold Miners (GDX): -16.14%
- Global Gold and Precious Metals Portfolio (PSAU): -15.56%
Year-to-date earnings as of July 30, 2012
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Disclosure: No positions at time of writing.