Equity Market Outlook Important for Gold Investors

January 26, 2009

Red Back Mining Inc. (RBIFF.PK) announced another share offering on Friday, after closing a C$60-million share issue in December. The most recent bought deal will see it sell 20 million common shares at C$7.50 each for proceeds of C$150-million, plus an option for 2 million more shares.

But with gold stocks climbing roughly 70% since their November lows, compared to a gain of around 10% for the S&P/TSX composite index, investors need to evaluate how much gold exposure they have in their portfolios.

UBS strategist George Vasic said the run-up in gold stocks may be cause for hesitation, despite the fact they are still attractive relative to the gold price.

Since 1970, when gold prices began to float, he found that the worse the overall market, the better was the relative performance of gold stocks. Last year served as a good example, with the TSX falling 35% but gold stocks climbing 4%.

When the market has been down, gold stocks have outperformed by an average of 17.5%. When it has been up less than 10%, gold's outperformed by 5.5%. And when markets rose more than 10%, they were about even.

Mr. Vasic said:

In short, gold stocks have provided portfolio insurance. Accordingly, while investors may consider a wide range of factors when deciding their gold weighting, one they may not have thought of is their market outlook.

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