Gold Stocks Offer You A Chance To Catch Up With Gold

Looks like the Fed plans to keep the Dow dancing in place as gold price rushes to meet it.

We reported yesterday that the wild swings of the past week have left the Dow pretty much were it started a week ago. Gold took the opportunity of the uncertainty to take one giant step forward.

The Dow/gold ratio started at 11200/1710 around 6.5 on Monday. Got awfully close to 6 in the middle of the week. Then finished at around 6.5 on Friday.

Much ado about nothing?

We don't think so. The trend is in place. There's more misery to be wrung out, more hope to be shot down, more dollars to be printed up.

Despite how much fun we had during this week's tremors, the folks at Kitco are warning that the Dow/gold ratio could keep moving in favor of the Dow for a while...

After a sharp rally to record nominal price highs over $1,800 an ounce, gold prices could see a retreat next week, most participants in the Kitco News Gold Survey said.

In the Kitco News Gold Survey, out of 34 participants, 23 responded this week. Of those 23 participants, five see prices up, while 14 see prices down, and four see prices sideways or unchanged. Market participants include bullion dealers, investment banks, futures traders and technical chart analysts.

We wouldn't worry too much about the gold price falling next week. In fact, we'd kind of welcome it...especially if we didn't already have some gold.

The Dow was 11000 ten years ago. It's about 11000 now in debased bucks.

Gold was around $300 ten years ago. Now it's six times as much as it flirts with the $1800 price.

True, the bucks in which we habitually measure gold are also debased...and that's kind of the point.

If you'd held a basket of plain ol' stocks, you'd maybe have the same amount on paper...but you would have lost a bit of purchasing power.

If you'd held gold, you'd be up not only on paper, but you'd find that your purchasing power had even increased in terms of the stuff you actually have to buy on a regular basis.

You would have done even better if you'd had bought silver...

Of course, we're cherry-picking our dates. You might have sold your stocks in 2008 when the Dow rallied to 14000! You might have sold your gold and silver at every pullback and bought at every rally.

But we can't account for bad luck and bad timing. We can only observe and report and offer a little conjecture...and maybe a little advice that we heard somewhere a few years ago at the beginning of this trend...

Dump the Dow on the spikes. Buy gold on the dips.

But as mentioned, gold bullion itself is looking awfully pricey lately. Even if its price does retreat, bullion may not represent the best opportunity in gold right now.

And what about gold and silver stocks? Well, there is still opportunity there.

Friend Jeff Berwick of The Dollar Vigilante writes in "Market Collapse, Gold & Gold Stocks"...

...gold stocks have definitely taken a hit.

However, Wednesday's action said a lot about what might be coming for gold stocks - which have lagged behind bullion by a wide margin.


With the overall stock market in the midst of a massive plunge (Dow down 520 points), the HUI rocketed higher, up 17.25 (3.14%), for the second straight day.
Perhaps gold stocks are finally going to play catch-up with the metal.


The last time gold stocks traded at this low of a valuation compared to gold was during the 2008 crisis. This time around the money supply is much more inflationary than in 2008, interest rates have been promised to be at a savings-killing 0% for another few years and gold stock valuations are much lower than in 2008.

That means that they could be nearing take-off. Even just returning to its ratio versus gold bullion from 2004-2008 would entail a 100% rise from here. And that was when gold traded for between $400-$800. Now, at $1,800, these stocks have multiple triple digit potential.

Triple digit potential is nothing to sneeze at. And there's potential for even more gains...

Those gain are expected if the stocks "catch up" with gold at its current level...but gold's nominal price could easily double--maybe triple after another round of quantitative easing--from here.

So topping out at $1,800 have you missed the ride in the midas metal? Hardly.

The soaring debt and likely follow-through by the Fed in debauching the dollar is as good as locked-in. And knowing the effects of inflationary monetary polices have on the price of gold - and ultimately gold stocks - there is more upside to come.