Bruce Pile

Gold Bulls Should Stay Away from Gold Stocks

So the average HUI to gold leverage goes from about 4 1/2 to 2 1/2 as gold went from $300 to over $700 according to the chart. Well, is 2 1/2 times leverage so terrible? If you select well, you should garner much better than the average of so many mining companies run by gangs who can't shoot straight and never make a dime of positive cash flow.

Your point about silver being a better leverage investment on gold is a good one. Silver is likely near an upside explosion that may dwarf the rise in gold.

The inflation adjusted price of gold from the last time we had any significant currency problem (30 years ago) is about $6000. It has been trading around $800 to $900 - about 16 % of its inflation adjusted price from 30 years ago. How many things can you think of that now trade at 16% of their inflation adjusted price from 30 years ago? TV sets, computers, a McDonald's dollar menu hamburger, and gold. That's incredible when you consider that there is no Moore's Law working for gold (just "more" investment money out there left over from the boom and looking for a home) and considering that the currency problem we face now makes the last one look like a nonevent.

Fundamentals, Valuations and Technicals Stress Need for Patience

Buy the massacres, sell the recoveries seems to be the only "investment" strategy that is working now. The market doesn't care much about valuation except to add strength to the bounce backs. So the market isn't rewarding very many stocks with persistent climbs. That's probably the way it will be until the market gets some clearer vision on future valuations.

The gold stocks may be the exception to this, but they are due for a massacre themselves.