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Gold Stocks... Myths vs. Realities

|Includes: DIA, GDX, SPDR Gold Trust ETF (GLD), QQQ, SLV, SPY

Gold stocks are getting bashed a bit by those two creeps :-) over at Inca Kola and Trend & Value, with the chief instigator being Cam Hui (now, is that not the best name for a gold stock commentator?).

First off, I agree with these three gentlemen, in their big picture views. But it was precisely the gold stock leverage vs. the metal that had me buying like crazy last year. Gold stocks had become a value for an intermediate term trade (NFTRH63 is going to talk a bit about short term thinking/trading vs. intermediate term - long term, we're all dead :-)) as measured in the metal.

Now? Not so much. In fact, not at all. The value proposition has drained from the gold stocks in relation to just owning the timeless metal. The HUI-Gold ratio made a peak in late May, which signaled that the value players were now in caution mode. It is no coincidence that this blog has been writing 'risk is rising' since about then - after being full bull from November, 2008. For me, caution mode means trading, profit taking and yes, holding a core. But also shorting silver, shorting various aspects of the broader markets and churning around through this process as things get sorted out.

There will come another time that gold stock leverage can be played for an intermediate swing. But as the 3 amigos above have noted, that time is not yet here. And yes, I fully agree with Lucas about the shady nature of many gold mining companies and they sure as hell are not gold. They are companies run by faulty people (aren't we all?) in a tricky business with discovery and political risk all around.

There, I just wanted to put my .02 in with these gentlemen.

Disclosure: Long gold miners, short silver, long usd, short denial