HardAssetsInvestor

Written by Brad Zigler  |

November 08, 2010

Ags Less Risky Than Gold Stocks But ...

Details

Gold has certainly given investors a wild ride recently. But even after counting the gut-wrenching gyrations following the midterm election and the Fed's QE2 announcement, bullion's volatility pales when compared to that of agricultural stocks.

Since last Veterans Day (Armistice Day or Remembrance Day for the non-U.S.), gold, proxied by the SPDR Gold Shares Trust (NYSE Arca: GLD), has climbed more than 29 percent at a volatility rate nearing 18 percent. Over the same period of time, global agribusiness stocks, represented by the Market Vectors Agribusiness ETF (NYSE Arca: MOO), have appreciated 25 percent with an annualized risk exceeding 24 percent.

On a risk-adjusted basis—measured by the Sharpe ratio—ag stocks have been riskier than bullion, but are less volatile than the larger-cap gold producers represented by the Market Vectors Gold Miners ETF (NYSE Arca: GDX). In the past year, agribusiness has outdone the senior miners returnwise as well.

Agriculture Stocks (MOO) Vs. Gold Stocks (GDX)

Why put up a comparison of gold stocks to ags?

Simple. It seems time for agribusiness stocks to take a little breather. Not a trend reversal, mind you, just a cyclical cooling-off period. Agribusiness stocks, or more specifically, the MOO agribusiness portfolio, are overbought.

Comparing the fund's return and volatility to gold and gold stocks puts the nature of its risk in perspective.

Ag Stocks Vs. Gold And Gold Stocks

(11-Nov-09 Through 05-Nov-10)

Unlike gold and the gold stock funds - including the even more volatile Market Vectors Junior Gold Miners ETF (NYSE Arca: GDXJ)—which have been scoring new highs, the agribusiness fund is retracing ground lost in 2008.

The fund's actually done a pretty good job of it, too. So far, MOO's rebounded to the $52 level after bottoming at $20 in November 2008. There's still ground to be claimed above this level, though. MOO topped out at $66 in June 2008.

Ag stocks gapped up along with gold last week to clear a resistance level left over from August 2008, but are still reaching for the next critical rung at $56. It's here where the market may need to catch its breath before vertigo sets in. The stage for MOO's present ascent was built in early October below $49.

Is it likely MOO will revisit that level? Likely, no. Possible, yes. Buyers probably will be shopping between the fund's 10-day moving average (now at $50.97) and its 21-day average price ($50.33).

Watch for bargains.