Banks vs. Golds

If you compare the price for Royal Bank (RY), Canada’s largest bank, against the price of Barrick Gold (ABX), Canada and the world’s largest gold mining company, over the last two years, I think the result is startling.

Yahoo Finance)

abx-vs-ry-2-years1 (Source: Yahoo Finance)

Starting about two years ago, I have as an investor/trader bought and sold alternatively ABX and RY.   I sell the one when it’s high and sooner or later the other drops and I buy that.  I’ve found that buy and hold, which I do with a part of my portfolio, has been an entirely unsuccessful strategy since I started investing about four years ago (see this article which confirms what I’m saying).  However, my alternate buying and selling of RY and ABX has helped me to offset the losses that I’ve incurred in the buy and hold part of the portfolio.

Why is there this inverse relationship between RY and ABX?  I think has to do with confidence in the economy, the monetary system, and in the government.  When confidence is high, investors like the banks.  When it is low, they buy gold and gold stocks.  Right now, with the banking crisis and the promised over spending in both Canada and the US, confidence is low, and so investors are turning to gold.  Over the last five days, the trend has reversed and gold is down somewhat while the banks are recovering.

Five day comparison (source Yahoo Finance)

Five day comparison (source Yahoo Finance)

P.S. Don’t try this at home, unless you are willing to take the risks involved.

7 thoughts on “Banks vs. Golds

  1. Je me dis que cette réfléxion peut être pertinente pour le contexte africain, mais il faudra, il me semble, que l’auteur en fasse le lien pour permettre la conversation. Et puis je ne comprends pas bien les contours de la question, même si je retiens l’importance que principe de la confiance, voire de la stabilité, pour les investisseurs, principes qui manquent terriblement dans les milieux des affaires en Afrique. Mais il y a des exceptions, de plus en plus, et certaines entreprises et compagnies commencent à capitaliser sur ces principes. Espérons que cela va faire tache d’huile sur le continent.

  2. Thanks Elisee for the question. I was hoping you would ask. “What is the pertinence of this for the African context?”

    To begin with, I tried once to explain to our friend Richard, what it was that I do in investing. I found that he really needed a primer on the basics. So I will from time to time try to explain what I do as a trader/investor, and hopefully, that will help some of our African friends to understand some things about our Western economy.

    We also invest a substantial part of what we make in theological education in French-speaking Africa and other charities, because Jesus said not to lay up your treasure here on earth. If Africa will benefit from the proceeds of our labor, is it then irrelevant how that money was made? I think it is highly relevant, so that both the financial partner and the receiving partner have sense that they understand one another. I will continue to write on this subject as inspired and I invite feedback.

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  4. I am not sure the place you’re getting your information, but great topic.
    I needs to spend some time learning more or figuring out more.
    Thanks for fantastic info I was in search of this information for my mission.

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