sammyg123

Fed Tightening and the Gold Market

Higher interest rates make gold less attractive. The end.

What a Week for Financials and Precious Metals

Option market seems to think GDX moves into the 50's by May. Perhaps this is a little optimistic? I suppose gold bullion stabilizes in the 900's, this might happen.

What Is It About These Divergences That Bothers Me?

I agree with all of the above. Also, gold stocks are dollar denominated paper assets with management, margin, and macroeconomic risk which is being priced in. Gold, however, is a dollar denominated HARD ASSET which is in demand and reacts faster and faster to price action in the currency and oil markets. I believe that gold stocks will catch up, but will have trouble due to the crisis in financial markets. For example, if I was a large bank or investment house with much assets in gold stocks and huge losses from subprime, I would be selling my stocks to shore up my balance sheet against losses in the subprime market. The bottom line is it makes sense to accumulate gold for the short and intermediate terms as per your personal strategy, but also to accumulate the gold stocks. Right now, the product that they produce is rising in price faster than their margin pressures. This could change, for if their margin pressures increase too fast, you will see mines closing and reducing production until the price of bullion is more supportive of their operation. The argument for bullion in the short term is stronger and stronger in this light, especially due to inflation of oil costs (oil is necessary for gold miners!) and also due to upward wage pressure. These things will balance out over time, which is what a gold stock trader must keep in his mind at this time.