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The 'Real' Gold Price Gold Miners Follow

Published 05/12/2023, 12:52 AM
Updated 07/09/2023, 06:31 AM
XAU/USD
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In a short-term and cyclical sense, gold miners and junior gold stocks follow the Gold price. However, beyond the short-term, gold miners follow the “real” price of Gold because it is a better indicator of long-term gold miner profitability than the nominal Gold price.

By the “real” price of Gold, we are talking about the Gold price in real terms. How is Gold performing against the CPI, CRB, or the stock market? The answer clarifies the outlook for Gold miners. 

Gold stocks and junior gold stocks have underperformed the Gold price for over a decade (and over the past seven years) because the real price of Gold has not kept pace with the Gold price. Also, Gold was in a secular bear market from 2011 to 2022. 

In a secular bull market, the Gold price rises consistently in nominal and real terms. 

Gold has not risen too much in real terms since 2016, nor has it broken out to a new all-time high and held it. Not yet.  

The best indicator for gold stocks over the long run is Gold against the CPI or the inflation-adjusted Gold price. 

The chart below plots Gold, Gold against the CPI and Barron’s Gold Mining Index.

The gold stocks follow Gold/CPI far more closely than the Gold price. 

However, when Gold is in a secular bull market, it also rises in real terms, which drives gold stocks much higher. 

BGMI Index Chart

Should Gold breakout and double in price over the next two to three years, then Gold against the CPI will blast higher to new all-time highs. 

In that scenario, the gold stocks indexes will break to new all-time highs, and Barron’s Gold Mining Index would begin a move similar to the mid-1960s. See the blue arrows. 

Now, before the Gold breakout, is the time to research and uncover the best opportunities while they remain cheap.

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