MFOHome About Commentary Discussions Funds The Best Resources Support Us!

Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

Sign In Register

Categories

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Gold Vs Gold Stock...which one is rational?

beebee
edited October 2011 in Off-Topic
Larry Fink (Black Rock Asset management) was interviewed by FT this week and he was asked whether he was "long or short" gold. He commented that the gold stocks (miners) are priced for $800 gold while gold sits at $1700 today. Which is the rational valuation? He also feels positive for the US dollar...negative the Euro and the Yen. TGLDX holds a small position (6-7%) in physical gold along with its mining stocks. Would this be the right mix of PM and PM Stocks for a investor to hold? What combination of metals (PM) and Stock (PM miners) would make sense going forward?

Here's Larry playing Long-Short:

http://video.ft.com/v/1231232857001/Larry-Fink-of-Blackrock-plays-long-short

Comments

  • BobCBobC
    Mining stocks have lagged the price of bullion big time. At some point, this disconnect will begin to correct. There have been some M&As in the miners over the last few months, with the larger companies buying the smaller ones for their known reserves. But so far at least, this has not translated into higher prices for the miners as a whole. We have held both in some client accounts, and have been rewarded for the bullion but gotten whacked by the stocks. The miners will return to favor at some point.
  • beebee
    edited October 2011
    Reply to @BobC:

    I have also felt the "whack"...kinda like...whack-a-mole-in-a-mining-hole. Gold, the metal, is so much more the emotional trade...store of value...I just feel as though tha best vault in the world is in the ground. I have hesitated buying gold...which was dug out of the ground to take physical possession to just go dig my own hole and put it back in the ground. I guess the difference is it is now my hole verses a mining companies hole. I just want to be made "whole" after the dust settles.
  • ronorono
    Howdy folks,

    Hope everyone is doing well. The relationship between gold mining stocks and bullion has long been expressed, at least in part, by the gold/XAU ratio with the XAU being a market basket of miners - your DOW of the mining sector, if you will. These two methods of playing the precious metals space (i.e. mining stocks v. bullion) are tied hand and foot - but at times diverge. They're traded in different ways on different exchanges. They respond to many things the same but not all and this too, can lead to divergences. Well, whenever you have a divergence in the market, an opportunity arises to make a buck or two. And that's where the gold/xau ratio comes into play. This ratio has historically had a equilibrium level around 4.5 - 5.0 with higher numbers being a buy signal for miners while lower numbers are a buy for bullion.

    http://www.investmenttools.com/equities/xau_gold___silver_index.htm

    Right now it's 8.2 and has been extremely high-side for several years now - and it's still high-side. And it could remain high for a long time to come. What I've been doing is to overweight miners relative to bullion. This is easy with ETF's, but keep in mind that most pm or even gold mutual funds invest in ONLY mining stocks. TGLDX is one of the few that actually owns some bullion as Bee pointed out. CEF is an option for bullion as it hold gold and silver at about at 55/45 ratio but it's canadian so you have to deal with the tax issue to achieve a 15% rate. This is still worthwhile with tax software because the bullion ETFs like GLD and SLV are considered to be collectibles and taxed at 28% for LTCG. Ouch! I'm personally a fan of physical bullion in the form of jewelry or coins and kept in a deposit box as needed.

    What percentage? feh. I've been preaching 3-7% in pm's for years now. More is really speculation while I believe a small piece - say the 5% - is an investment. Sort of like the stuff animals my grandkids have they call their Bed Buddies.

    On this same topice - the gold/silver ratio is also a long time thing with it historically being between 15 and 20 to 1. Right now it's about 50 to 1. A couple of years back it got near 100. It tells me to overweight silver relative to gold.

    Oh, and this overweighting is all on the margin folks. Let's say you had 10% in pm's, with 8/2 gold to silver and 50/50 miners to bullion. By tweaking the weighting, you could to to 7/3 g/s and 70/30 miners to bullion.

    and so it goes,

    peace,

    rono





    http://www.chartsrus.com/
Sign In or Register to comment.