Gold Stocks Quandry

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Investors in gold stocks remain spooked for now. A selection of 70 of the world's leading gold stocks indicates an average loss in value of nearly one third, after share prices peaked around when gold bullion traded at a record $1,030 an ounce on March 7. This suggests either that gold stocks overshot, or that investors anticipate further downside from gold bullion.

Gold bullion tumbled by more than 1% on Monday, triggering a fresh sell off in gold stocks listed around the world. Gold fell to as low as $914/oz as the dollar rallied against other currencies after the weekend's Group of Seven meeting, which warned of lower global economic growth and hinted at possible measures to prop up the beleaguered dollar. Gold bullion later recovered to as much as $930/oz as the dollar failed to hold its gains.

Either way, investors in gold stocks remain spooked for now. A selection of 70 of the world's leading gold stocks indicates an average loss in value of nearly one third, after share prices peaked around when gold bullion traded at a record $1,030 an ounce on March 7. This suggests either that gold stocks overshot, or that investors anticipate further downside from gold bullion. Among Tier I gold stocks, retrenchments in prices from the peak have been far more modest, at 20%, compared to an overall average of 29% for 70 gold stocks.

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