Cam Hui

Gold Bulls Should Stay Away from Gold Stocks

I would like to thank everyone for their comments.

For the holdings of gold stocks: I never said that they wouldn't go up. In fact, given the technical position of the group it appears that they have good upside. However, if you look at the first chart here (humblestudentofthemark...) the more important question is "why aren't gold stocks near all-time highs?" This is like going to a casino and knowing that the house has an edge on you. It doesn't mean that you can't win, but how long are you going to put up with this poor relative performance before you give up and use another levered vehicle?

For the hard asset crowd: Again, I am not saying that gold stocks won't go up but if you believe in hyperinflation or economic collapse you should hold the physical metal or proxies that hold the phyiscal (like CEF).

For those who believe in stock selection: No doubt stock selection can add value. This analysis was based on the index averages (HUI and XAU). On average, we only get average returns. You can go down from the senior producers into the intermediate producers and junior explorers. The more junior you go, the more the play looks like some form of lottery ticket. Good analysis can give you an edge but the market is pretty efficient overall.

In conclusion, I believe that given the political, operational and developmental risk in the gold stocks, the risk-reward ratio is favorable enough when there are other alternative leveraged vehicles on gold.