By Brad Zigler
Real-time Monetary Inflation (last 12 months): 2.1%
Last month, some gold investors were positively giddy about the metal's seemingly inexorable climb past the $1,100 mark on its way to who knows where. More cautious investors were wondering if they needed to take some money off the table or somehow hedge their gold exposure as talk of a price bubble quickened.
On Nov. 10, we published the hedge ratios for "The Golden Dozen"—12 mining issues widely held by HAI readers (see "Update: Gold Mining Stock Hedge Ratios"). These ratios are used to compute position sizes in the PowerShares DB Gold Double Short ETN (DZZ) required to insulate stockholders from gold's downside variance.
Yesterday, front-month COMEX gold broke below its 50-day moving average. With the bears now calling the market's tune, February gold broke below its Nov. 10 level and seems headed for a test of the $1,068 level—a 50% retracement of gold's July-December rally.
Given the differing volatilities of the mining issues, this seems like a good time to check on the stocks' track record since Nov. 10.
Goldcorp, Inc. (GG)
Kinross Gold Corp. (KGC)
Gammon Gold, Inc. (GRS)
Silver Wheaton Corp. (SLW)
Coeur d'Alene Mines Corp. (CDE)
Hecla Mining Corp. (HL)
Yamana Gold, Inc. (AUY)
Agnico-Eagle Mines Ltd. (AEM)
Newmont Mining Corp. (NEM)
Barrick Gold Corp. (ABX)
Gold Fields Ltd. (GFI)
Eldorado Gold Corp. (EGO)
Front-month COMEX Gold
Gold's early-month course reversal has resulted in a price dip of only 0.6% below its Nov. 10 level. Nine of the mining issues have sunk below last month's price level, averaging a 9 percent loss. Most interesting is the fact that three stocks actually rose since Nov. 10.
That some stocks rose while others fell points to the double-edged sword that is volatility. Take note, in particular, of Hecla Mining Corp's (HL) performance. The hedge ratio number, derived from comparing the standard deviation of the stock's return against that of the PowerShares gold note is large, but it's not directional. To get a clue as to the signage—plus or minus—likely to be attached to a stock's performance, you need to consider downside variance, which we'll do in Thursday's Desktop.