07/14/10 San Antonio, Texas – It may come as a surprise to some that both the S&P 500 and the Russell 2000 are both considerably more volatile than gold bullion.
We believe that each asset class has its own DNA when it comes to volatility. You can see this in the chart above, which shows the rolling 12-month volatility over the past 10 years for gold and gold equities compared to key large-cap and small-cap stock indexes.
For gold, the volatility over any 12 months for the past decade is plus or minus 14.8% and for gold stocks (as measured by the HUI), it about three times greater — investors should look at these numbers as ‘normal’ behavior.
If you don’t pay attention to volatility of gold, for instance, you’ll risk being herded into buying at the top and then getting upset and selling at a loss after it corrects.
When you understand volatility, it’s easy to see how much risk you have if you’re leveraged. If you’re not leveraged, you have the flexibility to be able to buy gold on down days. Volatility can help you buy gold on sale.
Frank Holmes
for The Daily Reckoning
Frank Holmes
Frank Holmes is chief executive officer and chief investment officer of U.S. Global Investors Inc. The company is a registered investment adviser that manages approximately $2.08 billion in 13 no-load mutual funds and for other advisory clients. A Toronto native, he bought a controlling interest in U.S. Global Investors in 1989, after an accomplished career in Canada’s capital markets. His specialized knowledge gives him expertise in resource-based industries and money management. The Global Resources Fund was also Morningstar’s top performer among all domestic stock funds in the five-year period ending Dec. 31, 2006.
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