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-- Posted Wednesday, 4 February 2009 | | Source: GoldSeek.com
Gold stocks are supposed to have more leverage than the gold price – otherwise why own them? There is a generally accepted, unwritten rule that gold stocks should move 3:1 with gold – so if gold is up 1%, gold stocks as a group should be up 3%. Few people might believe it over the last year, but that ratio has held relatively well through the 2008 economic downturn, which saw the gold price get hit hard, and its resulting bounce-back. There is a sense in the market that gold stocks have not responded to bullion. But they have.
As an example, gold was US$970 in late July, and then moved down to US$720 during the October panic – 25% downward move. During that same time, the XAU went from 200 to 68 – 66% move – 2.5x the leverage. (The XAU is an index traded on the Philadelphia exchange. It consists of 12 precious metal mining companies.)
On the way back up from October to the highs in late January 2009, gold moved from US$720 – US$920 – a 27.7% increase. The XAU went from 68 – 126 – an 85% move – almost exactly 3x the swing in gold. 
But if we dig a little deeper, which gold stocks have moved the most – which ones has the best beta to gold? The website “Investing 101” says “"Beta" is a number which reflects how volatile a stock has been relative to the market… A BETA of 1.00 means that on average, a stock has traditionally matched the markets swings both on the upside and on the downside. A BETA greater than 1.00 reflects above average market volatility, and a BETA of less than 1.00 indicates below average market volatility.
In other words, which stocks (generally) give us the biggest bang for our buck when gold has a large move? We took a list of junior, intermediate and senior producers and compared their TSX share prices from the time gold started to tumble last summer, when it hit bottom in late October, and when it rebounded up to its recent highs in late January. (This list is by no means exhaustive.)
We have ranked them according to how big a percentage gain they jumped after gold hit bottom. We bolded the Top 3: 
As you can see, the stocks which give you the most upside, generally, also give you the most downside. Centerra, IamGold and New Gold have the strongest beta to movements in the gold price. So if you have the stomach for it, those stocks – over the last 9 months anyway – will give investors the best leverage to the gold price.
-- Posted Wednesday, 4 February 2009 | Digg This Article | Source: GoldSeek.com
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