COLUMN-Gold equities may be better bet than physical metal – by Clyde Russell (Reuters U.S. – May 1, 2015)

LAUNCESTON, Australia, May 1 (Reuters) – While the price of gold has meandered in a narrow range this year, gold equities have improved somewhat and an analysis of relative performance suggests they may have further to rally.

Spot gold ended Thursday’s trade at $1,183.85 an ounce, largely unchanged from $1,183.55 at the end of 2014, as the precious metal battles the competing influences of a firmer dollar and concerns over a Greek exit from the euro zone.

However, major gold miners have shown some improvement, with the S&P TSX Global Gold Index gaining 14 percent so far this year.

The Toronto Stock Exchange-based index groups together the world’s top gold producers, including No.1 Barrick Gold Corp , which is up 20.5 percent this year in U.S. dollar terms, and No.2 Newmont Mining Corp, which has gained 40 percent.

The No.3 producer, Johannesburg-listed AngloGold Ashanti , is up 32 percent since the start of the year in dollar terms. These are impressive gains for the top gold miners, especially given the steady price of the precious metal.

However, gold equities are still vastly undervalued relative to the spot price.

A relative performance chart using the S&P TSX Global Gold Index and the spot gold price shows a value of 0.351 as of April 30. A reading of 1 means the neither instrument is out- or under-performing the other, while a reading of 0.5 means the first is under-performing the second by 50 percent.

At the current value, this means the gold equity index is underperforming the gold price by a margin of almost 65 percent.

This is slightly higher than the 0.291 recorded on Dec. 16, 2014, which is the lowest value since Reuters data started in 1998. What this means is that despite the recent rally in gold equities, they are still close to the lowest relative to spot gold in at least 17 years.

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