Gold Stock Slowly Increasing Dividend Payouts

As I have said many times before, the major producers will slowly increase their dividends from miniscule to huge as the secular gold bull matures. Investors tend to act without vision in regards to the gold stocks. They “see” the underperformance of the gold stocks as permanent – the way it is. Investors, often in disgust, discard those lousy gold stocks into any weakness.

Investors that live by the emotions will die by them.

History paints a very different picture for the gold stocks which few investors seem willing to see or understand. The historical correlation of the gold stocks with gold illustrates a strong or tight correlation (> 0.8) between the two assets during periods of aggressive currency devaluation.

Historical Correlation of Gold Stocks to Gold:


The tightness of this historical correlation has loosened since 2006, but I seriously caution against proclaiming that “this time it’s different”. Capital flows will reassert the strong correlation between gold stocks and gold because it will be profitable. Capital is not emotional and it knows history.

A side by side comparison illustrates gold leadership over the gold stocks at breakouts. This leadership, however, does not mean outperformance throughout the entire bull market.

Gold and Gold Stocks Side by Side Comparison


As Selim recognizes with Goldcorp results, the gold stocks not only provide capital appreciation but also significant increases in dividend payouts as the bull market matures.

S&P Gold (Formerly Precious Metals Mining)*
*S&P Gold from 1945, Barron's Gold Stock Index from 1939-1945, 1922-1939 Homestake Mining:


Let the world focus on the size of QE2. The real interpretations lie elsewhere.

Eric and Jim

Just out of interest, I would be curious what you both think about what GG did today. Not only were their earnings/cash flow outstanding, the POG averaged $1239 in the 3rd quarter and their by product cost of Gold was $260 per ounce. And I forgot to mention Silver was in the 19ish and as for Copper ... God knows where it was? And it looks like $4/lb seems to be coming our way!!

A dividend doubling should be a shot across the bow to the shorts. Gold guaranteed over $1300 and silver over $22 in the 4th quarter... Should hugely impact forward cash flow. And one last thing...I would be surprised if they did an acquisition in the 4th quarter,

Let us see is this is a kickstart for our beloved and much maligned HUI index and send GG into the 50's???

Selim

Source: reuters.com