This year has proven to be somewhatof a difficult year for gold, as this precious metal has struggled to maintain its footing amidst global economic uncertainty. It seems as though eurozone turmoil and adisappointinglyslow road to recovery for the United States has become commonplace in today's market. Nearly everyday, investors are bombarded with headlines from around the globe, shedding light on the latest sour economic reports and the fragility of the global financial market. Although gold is often coveted as a safe haven investment during hard times, the precious metal seems to have lost its way so far in 2012 . In general, gold is the top choice for safe haven investments since historically the asset has exhibited a negative correlation to the stock market: when the equities market takes a tumble and economic uncertainty is high, investors often shift their assets towards the safer and reliable yellow metal. In 2011 this theory held true, as gold featured a correlation of -0.64 to the S&P 500. But as the chart below depicts, this year investors have witnessed a new phenomenon in the gold market.
Currently, gold is exhibiting a 0.13 correlation to the S&P 500, making many investors question whether or not the precious metal is really a safe haven asset. Despite this unusual behavior, some Gold ETFs have managed to post modest gains amidst this year's volatile environment.
Commodity Gold ETFs in First Place
Both physically-backed and futures-based gold ETFs have proven to a be a bright spot so far in 2012, with each fund landing in positive territory on their year-to-date returns. Because these commodity ETPs invest in either physical bullion or futures contracts on gold, they generally reflect the spot price or the underlying contract on gold. And with gold prices kicking off the year with a strong start, several of these products have performed quite well:
- DB Gold Double Long ETN (DGP): 4.41%
- COMEX Gold Trust (IAU): 3.87%
- Ultra Gold (UGL): 3.72%
- Physical Swiss Gold Shares (SGOL): 3.65%
- SPDR Gold Trust (GLD): 3.65%
Explorers and Miners Left in the Dust
Gold explorers and miners, however, have fallen on hard times this year, as rising production and operating costs continue to hammer the industry. Recently, the world's largest gold producer, Barrick Gold Corp. (ABX), posted relatively poor second-quarter earnings, citing that the drop in profits was largely due to the fact that average costs of producing an ounce of gold have ballooned, as have capital costs. And although gold prices have fared well, the uptick in the precious metal has not been able to compensate for gold miners' and explorer's rising costs:
- Daily Gold Miners Bull 3x Shares (NUGT): -51.15%
- Global X Gold Explorers ETF (GLDX): -28.19%
- Market Vectors Junior Gold Miners (GDXJ): -20.45%
- Market Vectors TR Gold Miners (GDX): -16.14%
- Global Gold and Precious Metals Portfolio (PSAU): -15.56%
Year-to-date earnings as of July 30, 2012
Follow me on Twitter@DPylypczak
Disclosure: No positions at time of writing.
Stock AnalysisStuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
EconomicsEmerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
Stock AnalysisPepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
InvestingHow do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
Investing BasicsIs there an opportunity in exotic currencies right now, or are you safer sticking to the major ones?
Mutual Funds & ETFsCompare and contrast the rise of America's big three institutional asset managers: BlackRock Funds, The Vanguard Group and State Street Global Advisors.
Stock AnalysisThese three stocks are resilient, fundamentally sound and also pay generous dividends.
ProfessionalsMutual funds are a good choice for emotional investors. Here are five popular funds to consider.
Investing NewsAre stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
Investing NewsHere are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>