James > I cannot understand your caution right now as gold mine stocks have outperformed the S&P since Oct. 2000
Yes, you are absolutely correct about gold stocks outperforming S&P. The following charts will, however, show that there is now little to choose between the two as the Dow (S&P) has stopped falling and, in fact, many regard Dow/S&P stocks also as hedges against the USD
stockcharts.com[l,a]dalaynay[dj][pd150,2][ilb14!la12,26,9]
stockcharts.com[l,a]dalaynay[dj][pd150,2][ilb14!la12,26,9]
So, clearly, if one lives in America gold stocks have been a winner. But this is not necessarily so when one lives in other countries where the local currency has appreciated against the USD eg Canada, South Africa, Euroland, Switzerland and Australia etc. In fact, the currency may have appreciated more than POG and in this event gold shares may have not done particularly well. But that's something else which doesn't affect you.
Interestingly, the HUI has massively outperformed the XAU. Some will say this is because the XAU shares are hedged, others will say it's because of the silver mines in the HUI but I think it's just about speculation. The truth is that bullion sales have been falling every year and this big run on the gold price has been driven by futures and options ie paper gold and not by actual demand for the metal. The next chart is from the World Gold Council.
gold.org
It's a peculiar chart which you have to read sideways. The annual figures are in the bottom right corner reading upwards!
Now read the next page, especially the figures about the long and short interest.
technicalindicators.com
Clearly, what is driving the gold price is simply hedge speculation about the potential weakness in the USD. There is nothing else. There is nothing mystical or magical or special about gold, other than this. If/when the USD stabilizes the gold party will be over too. |
