Closing the Gap Between Bullion and Gold Stocks

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According to UBS analyst Tony Lesiak, gold needs to break the psychologically important US$700 per ounce barrier, margins must improve, and investors need to see some exploration excitement if the performance gap between bullion and gold stocks is to close.

Gold has long been considered a safe haven in times of increased uncertainty - rallying in risk-averse times. But since 2006, bullion has rejected this historical trend.

While gold has risen 3% (equities up 4.9%) on average during times when risk-aversion is elevated, prices have fallen 2.9% (equities down 5.8%) during similar periods in the past two years, according to UBS analyst Tony Lesiak.

He thinks the disconnect is due to the unexpected strengthening of the U.S. dollar, speculative selling, and continued selling by central banks. As investors continue to search for safety in the turmoil-filled market, gold will once again fill the void, Mr. Lesiak predicted, adding that this should bode well for gold equities...

However, he also thinks gold needs to break the psychologically important US$700 per ounce barrier, margins must improve, and investors need to see some exploration excitement if the performance gap between bullion and gold stocks is to close.

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