Seeking Alpha
Long/short equity, deep value, special situations, contrarian
Profile| Send Message|
( followers)  

Summary

  • Gold stocks have had a great quarter.
  • But since gold is still not in a long term uptrend vs. stocks, gold might prove be a headwind for the sector, even if I am still positive for miners.
  • As such, it might be time to take profits and sit it out for a while.

I have been bullish on all things gold for several months now, but not particularly gold itself. As I see it, gold "derivatives", such as gold stocks had more to gain than gold itself and they have done just that (so far).

However, before we continue, I want to remind everyone of the long term picture for gold. And the long term picture that I want to show you is none other than the Dow/Gold ratio.

(click to enlarge)

source: macrotrends.net

As I have said before, stocks are the place to be for the next several years as opposed to gold itself. However, this does not mean that gold will not give a rally here and there, or that gold stocks will not rally for different reasons. I claim that gold and gold stocks are two different animals.

So while gold (NYSEARCA:GLD) itself has risen by 11.5% YTD, gold stocks have risen by a lot more. If we look at some of the large cap gold stocks, YTD they have performed rather well. Randgold Resources (NASDAQ:GOLD) has returned 29%, Barrick (NYSE:ABX) 12%, Newmont Mining (NYSE:NEM) 5%, Silver Wheaton (NYSE:SLW) 25% and Yamana (NYSE:AUY) 16%.

(click to enlarge)

And if we look at the ETF level, YTD the Gold Miners ETF Market Vectors (NYSEARCA:GDX) 23%, the Junior Gold Miners ETF (NYSEARCA:GDXJ) 41%, and my favorite speculation play the Gold Miners Bull 3V Direxion ETF (NYSEARCA:NUGT) about 74%.

(click to enlarge)

One reason why gold might fall over the next several weeks and months, has to do with China. China's exports unexpectedly tumbled in February, swinging the trade balance into a deficit and adding to fears of a slowdown in the world's second-largest economy. In fact China's trade deficit was the second largest on record.

And while China's leaders claim that the country's economy is guaranteed to grow at 7.5%, if export data does not return back to normal levels over the next reporting period, that might be a sign that China's economy might cool down in the future. That might mean less demand for commodities.

The situation in Crimea, while not enough to put a dent in Western economies, doesn't make for good psychology. And given that Gold stocks have had a good first quarter, it might be a good idea for investors to stay on the sidelines for a while, given (as I said in the beginning) gold is not a long term uptrend.

Longer term I am still positive for gold miners, but from time to time investors need to take their profits and take a vacation with the money. I think this time is now.

Source: Gold Stocks Are In For A Breather