Gold-Stock Underperformance Relative To Gold Itself

A Bloomberg report reveals that the long-term underperformance of the gold stocks in the Standard & Poor’s/TSX Gold Index, one similar to the Amex Gold BUGS Index, widened to a record gap last month. The quoted expert, Paul Vaillancourt, says that the main reason is investors would rather buy physical gold now that it's convenient to do so:

"Investors are saying, ‘We would want to buy a gold company because of the exposure to the price of gold. Let’s just skip that and buy gold directly,’” said Paul Vaillancourt, director of portfolio strategy for Franklin Templeton Managed Investment Solutions in Calgary.

Direct investment in gold has become easier because of the proliferation of gold exchange-traded funds, said Vaillancourt, who helps oversee about $27 billion.

He himself is looking favorably on Canadian gold stocks as part of the late-stage cyclicals group, because he believes that the cost squeeze afflicting those companies [in large part induced by the credit crunch] is past.