I think the disparity between the gold price movement and the gold stock action has to do with the nature of the buyers. The great surge of physical buying that underlies the POG is mostly directed towards wealth protection rather than speculation. The Chinese, Arabs, and Japanese are transferring their savings into gold to avoid the increasingly obvious inflationary way currencies are managed, particularly the dollar. This flow is based on a longer-term strategy, and does not reverse itself rapidly.
The gold shares, on the other hand, are part of a still incredibly frothy, speculative stock market, where traders and fund managers are still looking for "hot" sectors and stocks to boost performance. These holders are incredibly weak hands, who often don't really understand the fundamentals underlying the rise of the gold price. They are following the price action of stocks, and are quick to take profits at various points indicated by technical analysis. Lacking a belief in the "story" of gold, they are also extremely nervous, and are ready to transfer out of gold stocks for any new hot sector. These speculators are currently overwhelming the "smart" fund money that is slowly building positions in the gold shares.
As a result, rather than viewing the gold shares as "not behaving well," I see them as offering unusual value whenever they get dumped by the speculators. Most shares are cheaper now than when gold had not broken out of it's $330 resistance. I don't think we'll see these prices for long.
That is my view of the gold stock/POG dichotomy, for what it's worth. /Kit |
