I received an email stating, "Recently, we have received a few queries recently about the above fund and why recent performance is negative in light of the increase in gold price. Please read attached commentary from _____ that will be useful to answer your queries.". The fund invests in gold stocks. Out of curiosity I plotted the AMEX Gold Bugs Index (HUI) which tracks gold mining companies vs SPDR Gold ETF (GLD). The following chart was what I got:
From the chart, it can be seen that gold stocks have not being doing well recently despite the rising gold prices. Gold stocks are ordinary companies which its earnings are affected by many factors and not just gold prices. This reminds me of the importance of knowing correlation. If one assume a perfect correlation of gold stocks with gold prices, he is dead wrong.
Many investors use the concept of ......