Readings: $1000 gold, Central bank intervention, HUI/Gold ratio
- TheStreet.com: Gold Bulls Eye $1,000 Bullion
. . . there is also a distinct bias toward favoring bullion and the bullion exchange-traded funds, such as streetTracks Gold Shares (GLD) and iShares Comex Gold Trust (IAU), over mining stocks.
Portfolio manager Jean-Marie Eveillard, who runs the $1.2 billion First Eagle Gold Fund, agrees with the bullion-over-miners call, saying it means not having to worry about the management. “Gold-mining companies have been in the terrible habit of issuing equity, diluting the value of the stock to current shareholders,” says Eveillard.
“recent Fed action, and co-ordinated central bank intervention to thaw credit markets, could be positive for mining and metals if it staves off debt-driven deflation/recession, or spurs the next leg of the re-flation trade. In many ways, this makes M/Metals a test case for global growth re-balancing.”
“Our sense is that the ‘non-surprise’ of 2008 will be that the U.S. slips into recession, and that the ‘surprise’ will be that M/Metals prices remain robust, as suggested by the 5-year futures on copper and aluminum.”
- Zeal LLC: HUI/Gold Ratio Trends 2
Over the course of entire commodities bulls all throughout history, mining stocks far outperform their underlying commodities. Gold stocks are the classic way to leverage and multiply gold’s gains.
Gold has outperformed for a long time now so traders assume this new status quo is going to last forever. But in reality, relative performance is very cyclical. Gold outperforms for a while, then the stocks outperform for a while. After long periods of gold outperformance is actually when the stocks are the most likely to suddenly rocket higher.
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