Gold vs. Goldcorp

The proliferation of bullion ETFs changed how people invest in gold and in particular, gold stocks. Bullion is above ground, refined gold. Gold stocks are underground reserves, with political, management, and execution risk. A popular pair trade with hedge funds has been to go long bullion and short gold miner stocks. I started looking at gold miners because some looked like bargains. Following is the gold price to Goldcorp stock price since 2003.

There are two trend lines on the chart. The linear trend has been rising slightly (in favor of gold), while the exponential shows where the pair trade might have gained favor, around January, 2007. Goldcorp (GG) had a huge gain this week after the Fed extended ZIRP to the end of 2014. The Gold/GG ratio now sits between the exponential and linear trend lines.

disclosure: this is not investment advice. I have a small position in GG.