Saturday, May 5, 2012

Study on GDX and SPX

GDX is Gold Miners Index, and GDXJ is junior gold miner index
GDX came into being in 2006

Back in the day, the theory was that buying gold miners was a way to get free leverage on the price of gold.   This has worked out NOT AT ALL.

A miner that I bought previously had estimates of cost of production of gold at $200 per ounce in 2006, now in 2012 there actual "production cost is $650 per ounce".    That means that they are pocketing the money and overloaded their accounting.    Cost of doing business has in no way gone up that much.    Many gold miners are scammers, esp. the juniors.    The regulatory and stock oversight peoples don't seem to do much to regulate outright lies, perhaps a few gold coins shuts them up.   But then that same problem seems totally prevalent in almost every industry.

I did a study to see how the GDX moved in relation to the SPX from 2006

828  Number of Days SPX closed up
460  No. of days SPX went down AND GDX went down
216  No. of days SPX went down and GDX went up

1505  Total Trade Days Since May 22, 2006 (first day of GDX)
510  No of Days that SPX and GDX traded opposite of each other

The mathematical correlation between SPX and GDX is 0.27 which means they kind of move the same direction but just barely.

About 1/3 the time they move opposite.

The comparison to the Russell was much the same, not even worth publishing the minor differences.

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Insightful and Useful Comment!