Gold equities have had an inverse correlation of share price: net asset value (P/NAV) versus the gold price since late 2009. Historically the senior gold equities have traded +1.2x P/NAV.
The Gold Report: On April 15, gold dropped to a two-year low as panic selling set in across many mine commodities. Was this the larger players showing the retail market who is in control or was it inevitable?
Michael Gray: Several firms have been predicting a mid-cycle correction for gold; it just happened faster and with more volatility than expected. It also seems to be a very well-timed short-selling trade, especially on the back of the positive gold price correlation with quantitative easing (QE) breaking down and reversing post-QE3. In addition, there was no response in the gold price to the debt crisis in Cyprus or political concerns with North Korea. This was an opportunistic time for the shorts to come in, and they did, forcefully.
TGR: Does this indicate that investors prefer equities to gold?
MG: Not necessarily. The gold equities have moved sharply down and most are now pricing gold at an implied gold price of $1,000 -1,200/ounce ($1,000 -1,200/oz) or less. There is some fear that the gold bull run is over, which explains why many institutional investors have been abandoning their gold equity positions. ...