Abstract
We investigate the relationship between gold prices and gold equity index levels and consider whether this offers any explanatory power for the future returns of gold stocks. It is observed that a simple, well-specified model can explain movements in the stock prices of gold-producing firms. Using evidence from gold exchange-traded funds, we also show that investors’ market timing decisions have reduced their average returns from these instruments by over 1.5 per cent annually between 2005 and 2009.
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