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