Silver, Gold, HUI and the US Dollar!
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| Topic: Other, Gold — July 12th, 2008
Charts are courtesy of Stockcharts.com
As we pass the half way stage for 2008 we can see from the above chart that 1st place goes to Silver, 2nd Gold, 3rd HUI and 4th US Dollar.
Interesting to note that silver is at the moment outperforming gold and hanging on to pole position with the stocks in third place and the dollar stumbling around in the basement. Its been our opinion for a long time that silver will outperform gold and return the biggest profits by the time this bull market draws to a close.
As the lions share of our investment funds are in the precious metals stocks we are looking for these stocks to outperform the metals. Since 2001 when this bull market kicked off the gold bugs index as represented by the HUI has outperformed the metals by a factor of around 4:1, as the chart below demonstrates.
However during the last two years we have experienced the opposite with the metals taking the lead, which raises the question of where to position ourselves for the best returns going forward. It is a difficult question for us to answer other than to say that we suspect that the current situation of the metals being in pole position is an aberration and sooner or later the stocks will explode and outperform the metals. We can’t see into the future and we cannot prove what we are saying, so it is no more than our humble opinion. However it is an opinion based on experience that stretches back to the late ‘70s’ prior to the first precious metals bull market and our evaluation of the current economic environment and the political tensions that just wont go away.
As an investment sector this has to be the most exciting place to be right now as this bull snorts and grunts in preparation for the coming charge at previous highs. Whether you are a dot.com or an oil person a few precious metals stocks would give your portfolio some diversification, a few sleepless nights and a white knuckle ride to boot!
Have a good one.
If you are new to investment in the precious metals sector then you may wish to subscribe of our FREE newsletters regarding gold stocks, silver stocks and uranium stocks, just click on the links.
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According to me there are 3 reasons why gold has outperformed gold stocks for 2 years :
Firstly, oil has progressed faster than gold during the last 2 years. GOR was on average lower during 2006-2008 (8) than during 2002-2006 (10). And mines have important costs of oil. Even if I am not very sure, as we can see that during 2002-2008, GOR peak don’t match with higher performance of gold mines stocks.
Secondly, since mid-2007 and the begining of the credit crisis, it’s certainly more expensive for mines to borrow money. And mines are important borrowers. And we can see on other stock markets that companies with high debts have seen their stock price collapse since then.
Thirdly, since 2006, you have had an explosion of the number of tracker, certificate, turbos and ETF available on the market for gold. So it is easier for people to invest or speculate directly on gold without having to store physical gold. They have an easy alternative to the gold stocks. And I fear that, if many banks and financial institutions go bankrupcy in the next few years, many certificate or tracker will simply end without value from one day to another.
Please give me your point of view if you agree or disagree with me.
Comment by Nicolas — July 13, 2008 @ 10:05 pm