Bruce Pile

Gold Stocks: The Ultimate Options Strategy

It's true that there was the inflationary event in 1934, during the pre-1968 era of the gold price being set by the government, when Roosevelt jumped the price from $20.67 to $35. This devalued the dollar as we are doing now. The gold standard was a major drag back then. Every major currency left the gold standard at some point during the Great Depression.

But the gold mining stocks did 400%+ climbs before 1934, with gold flat during a period of severe general price deflation. For a nice article on this, google "Gold Stocks in a Depression" by Jeff Clark


On Nov 02 11:58 AM chap08 wrote:

> "look at what gold stocks have done over a large variety of strong
> market disturbances - from deflation to inflation"
>
> Where is your deflation period? I hope you are not referring to Homestake
> in the 29 to 35 period. The boom in gold stocks in this period was
> due to an inflationary event, not a deflationary one. It was caused
> by the devaluation of the dollar from $20.67 to $35 on the gold standard.
> Suddenly, due to a deliberately inflationary government edict, gold
> production and reserves were worth about 70% more in dollar terms.
> This kicked off a gold mining boom that doubled production by the
> end of the 30s.
>
> None of your examples demonstrate the performance of gold stocks
> in deflation, or when gold is "steady" (for the reason I give above,
> you are totally wrong to say that gold was steady in the 30s). The
> reality is that, if we were to return to a deflationary trend, gold
> stocks would fall hard. During the deflation scare of 2008, gold
> fell by 30%. If the Fed starts raising rates and the dollar rallies,
> gold and gold stocks will fall again.

Take Advantage of Weakness in Metals and Mining

You may be right about natural gas not being in short supply for awhile. About the only way that will happen is if America starts aggressively building LNG facilities to export gas and/or aggressively starts building nat gas refueling stations to convert our cars and trucks away from oil. Both those things would take time even if there was the money and backing to do it.

Gold Price Manipulation: So What?

Bank manipulation of gold pricing is one reason I am amazed that fractal gold predictions seem to work. How does fractal analysis factor in what the banks do and when they do it? But the fractal practitioners keep accurately calling the moves of gold anyway - see my blog post "Is Gold at a Fractal Moment?" (goodstockinvesting.blo...). Fractal analysis must have some built-in mechanism for anticipating big money selling or buying.

Massive Options Trade Signals Gold Miners (GDX) Is Set to Glitter

Don't look now, but silver just broke its bull flag pattern to the upside today. Gold and silver technicals seem to be signaling a big move soon either up or down - a lot of pent up energy ready to blow down or up.

The stock market rally detractors are assuming any bull move in silver automatically means a stoppage of the bull move in stocks. People are either fearful and buy PM or bold and buy stocks, right?. But let me point out that it is entirely possible for gold, silver, and the stock market to all move lovingly together in a raging bull market! Impossible you say? Well you need to look no further than our last big bear decline in '01-'03 to find an example of this. Look at what silver did from mid '01 to mid '04 and you see that it was in a mild climb channel during the bear market. But then, as we emerged into the stock bull market in early '03, silver moved into a much steeper climb into '04! Gold's action was similar.

That makes sense when you consider that, in the present case, you have the same 800 lb gorilla causing both the economic "recovery" and the dire threat of out of control inflation soon - namely the massive flood of fiat dollars.

ETF vs. Mutual Fund: Two Ways to Invest in Gold Miners

An added thought to the above on gold stocks, there was a very fundamental reason for them doing well in past bull runs. Homestead Mining's stock climbed, but also their earnings and dividend payout climbed at something like a 40% annual rate over the first few years of the Depression. If they were selling clothespins as their business, their stock would have done well! It was not just crazy fear-mongering speculation.

If you look at the charts and valuation by cash flow of gold stocks today, you see quite a collection of what you would have to call pure value plays. The price-to-cash flow numbers of many gold stocks are running well below the average for the S&P 500. But unlike most of the rest of the stock world, their product is not suffering severe demand destruction. Yet the gold stocks have received the same thrashing, even worse, than the rest of the market.

ETF vs. Mutual Fund: Two Ways to Invest in Gold Miners

Gold stocks are typically thought of as a one dimensional play on inflation. But there is more to it than that. For example, in the start of the Depression with deflation raging, gold stocks did a fabulous climb. And it started even before FDR fixed the price of gold keeping it from possible deflation.

Gold seems to respond more to chaos and uncertainty than to the current inflation rate. After all the debate on CDS, bank conditions, deflation, and inflation, there is only one form of money not subject to any personal liability anywhere and thus not subject to default - gold.