Yesterday I presented a long term comparison of the price appreciation of gold bullion and the Dow Jones Industrials during two valuation periods: 1879 to 1974 and 1974 to 2012. Both assets performed very well during both periods. Measuring from 1974, stocks have had a greater appreciation and could be considered over-valued.
We also know, but I didn't discuss it, that these assets often outperform each other dramatically in many shorter time periods. For example, from 1981 to 1998/99 stocks greatly outperformed gold, and from 1999 t0 2012 gold has greatly outperformed stocks.
Gold has also greatly outperformed gold stocks since 1998/99 by most measurements, which suggests that gold stocks may be an undervalued asset in a period when few assets are undervalued.
HUI is the Amex unhedged gold stock index which is market weighted and frequently re-indexed, and ASA is the first US-based gold stock closed-end fund. ASA assets are chosen according to its own in house research and is priced by the markets.
Both HUI's and ASA's price ratios to gold bullion's daily gold price (monthly for these charts below) show that gold stocks are now undervalued relative to gold and close the valuation lows of the 1998-2001 period and the 2008/9 ratio lows.
If a portfolio is underweight in gold exposure or one is put off by what seems like a high price for gold bullion, it could be worthwhile to look at individual gold stocks or gold stock closed-end or indexed gold funds such as ASA, GDX, GLDX, GDXJ or mutual fund BGEIX (and others).