Sakata

Gold / Silver Ratio at Code Yellow

Just how many loave of bread are you planning on buying with your gold coin? If you cannot use silver as currency for change then you better be prepared to buy a lot. If you don't need a whole lot more silver than gold to make change with then we are really in trouble because it means inflation will be going up way faster than gold.


On May 04 05:01 PM tallguy wrote:

> Interesting article.
>
> There is another refinement that may be underway, and that is the
> default to one standard, gold rather than silver as the default currency
> in preparation for the inflation that is to come.
>
> Gold is easier to store, weighs much less / $, takes up less space,
> more universally has been a currency, doesn't tarnish, is easier
> to ship, etc.
>
> Silver may be relegated to the commodities pile, with gold in the
> currency pile. China for example is classifying gold as a monetary
> asset.

Gold Bulls Should Stay Away from Gold Stocks

The article is not lame, and it does make some valid comments. But I think the main point is a little off the mark. The scatter plot shows that, even when gold is above $500, gold stocks go up quicker than gold itself. They also go down quicker. All it says is that a random selection of gold stocks has a create volatility than gold. None of this is surprising. Note that the scatter plot is misleading because the scale is different on each axis.

What the author fails to point out (and sharkboy does) is that if you pick the best companies then gold stocks will out perform gold more often than not in a gold bull market. The last year or so has, as a whole, been an exception to this, but the last four months have proven it to be very true. Since the beginning of Decemeber HUI has increase 54% against gold's 28%. My personal portfolio of junior mining stocks has gone up 49%.

Blanket statements about whether or not to hold a certain class of stock are bound to be controversial. An experienced investor knows which ones to pick and will be able to make more with stocks than with gold in a large percentage of cases.

The Mystery of the Underperforming Gold Stocks

I'm a little confused. Your first graph shows the HUI/Gold ratio not much below its historical average over the last 25 years. For the last 6 years it has been high. To me, this means that we have recently returned to the norm and so saying that they are currently underpriced seems a little bit off.