QE Watch

All the world is waiting for the words from the great god Bennie Bernanke. Bernanke is the recognized ultimate expert on the Great Depression of the 1930s. After laboriously studying the Great Depression, “What’s this?” It appears that at one point the Fed shrunk the money supply, thereby sending the already-staggering economy into a hell-hole with the Dow falling to a price of 41 in July 1932.
God-awful mistake realized Bernanke, and at one point Bernanke actually apologized on the part of the Fed for the Fed’s unforgivable mistake. Silently, Bernanke swore to himself, “This will never happen on my watch. When the economy slumps, feed it with money, more and more money, and if the dollar tanks, so be it.” – Richard Russell of Dow Theory Letters

Metal Versus Metal Stocks

Gold versus Gold stocks. A topic near and dear to my heart. One that I have studied relentlessly for the past several years. I am no mining expert. I am not the one that can point you to the next “ten bagger” in the junior mining sector. But I have been right in insisting that my subscribers favor Gold over Gold stocks and I continue to favor Gold (and silver) over the companies that dig these metals out of the ground. This is sector analysis, not an individual firm analysis.

Gold stocks are undervalued say the Gold stock bulls. The fundamentals are improving thanks to a rising “real” price of Gold. These things are true. But a “value trap” is believing that things that are cheap can’t get cheaper. They can. 

Now, I trade Gold stocks, I don’t hold them for the long term. My long term investment for this secular precious metals bull market is physical Gold held outside the banking system, and a little bit of silver. Why? Because Gold stocks are not Gold, they are a paper derivative of Gold. And when the poop hits the fan, like it did briefly a few short weeks ago, Gold stocks get thrown out with other stocks. Sure, they may hold up better than base metal stocks or banking stocks, but a break even proposition when Gold is rocketing higher seems like a poor trade to me. I’d rather hold the GLD ETF and make some fiat money rather than be loyal to the Gold stock cause and not make any money. 

When the Gold sector is healthy and in “proper” alignment, the juniors should be leading the seniors higher. One can use a ratio of the GDX ETF (i.e. the senior miners) to the GDXJ ETF (i.e. the junior miners) to get a sense of whether the seniors or juniors are outperforming. Here’s the data during one of the bigger bull runs of this secular Gold bull market (a GDX:GDXJ ratio chart over the past 6 months):

….read more & view charts HERE