FORTUNE -- The golden bloodbath of 2013 has given way to a modest recovery for the precious metal, as the price of gold has risen nearly 10% since the beginning of the new year.
But is this turnaround the beginning of another years-long run-up in the price of gold or just a temporary blip? In a new research paper, analyst Claude Ebb looks at the price of gold as it relates to gold mining stocks to find an answer. He points out that, historically, the price of gold and gold miners' stocks have been closely linked.
As you can see, the price of gold and gold miner stocks are highly correlated, but the decline in stock prices in recent years has far outpaced the decline in the price of the actual metal. So, if this relationship is to hold in the future, either the price of gold will have to depreciate by 50%, or the price of mining stocks will have to appreciate by roughly 100%.
So, then, does the price of gold drive the price of gold mining companies or vice versa? Ebb suggests the following:
If these two ideas are accurate, then the price of gold will eventually follow the price of gold mining stocks rather than vice versa. After all, if the price of gold mining stocks tells us the present value of gold in the future, then we should expect the price of gold to follow the value of gold mining companies.
Of course, there's always the possibility that the relationship between gold mining stocks and gold itself has broken down. Perhaps investors have simply lost faith in the management of the gold mining companies or their ability to profitably mine gold. Will Becker, a securities analyst at Behind the Numbers, released a research report last year on gold mining companies in which he argued that mining companies are facing a slew of troubles, like an inability to secure financing, increased royalty fees, taxes on mining, and the declining quality of gold ore.
In fact, the average grade of gold mined has fallen to 1.5 grams per tonne of ore. "To put this in perspective, average ore grades in the U.S., Canada, and Australia were at 12 grams per tonne in 1950 and around 3 grams per tonne in 2009," Becker writes. In other words, the world might simply be running low on easily mineable gold. That, of course, could be a very bullish sign for gold prices, as the increase in world supply of gold could be slowing dramatically.
In the end, gold's value will hinge on the future role the precious metal will play in the global monetary system. If gold is, in fact, becoming more difficult to mine, the wealthy will find some other pretty metal to adorn themselves with and some other investment to hedge against inflation and tail risks.
If, on the other hand, gold will ultimately function as the only refuge for investors in a world where governments are debasing every other form of currency, then the precious metal stands to appreciate far beyond its current value.
The expectation of the Federal Reserve's tapering isn't the only thing pushing gold prices down.
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FORTUNE -- Gold is down more than 25% from its recent highs, leading some observers to declare it on track for its biggest one-quarter decline since the Bretton Woods system collapsed in 1971.
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The decline in gold value is almost steep enough to be a bear.
FORTUNE --It may not be much longer before the yellow metal says bye-bye to its bull run.
Up until last year, gold prices traded higher for 11 consecutive years. Investors typically buy it for two reasons: Either to guard against uncertain economic times or to hedge against inflation. The precious metal soared in the years following the financial MORENin-Hai Tseng, Writer - Mar 12, 2013 11:06 AM ET
Central banks are trading their gold for cash. What do they know that we don't?
By Heidi N. Moore, contributor
We've all seen those commercials where shouting announcers urge consumers to trade in their old gold for cash. Who knew that central banks would be the ones who took them up on it?
Well, sort of. The Bank of International Settlements has bought 349 metric tons of gold from governments, which raised $14 MOREJul 7, 2010 12:31 PM ET
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