Here is a good analysis done by Gold-Prices.biz that goes a long way to explaining why I no longer trade mining stocks. They have been correlating to the overall stock market and and under-performing actual gold. Also, I strongly believe in the concept of Freegold as depicted by FOFOA. This argument says that paper instruments of wealth will ultimately seek out their intrinsic value, that of paper. Physical gold will maintain its intrinsic value.
I trade options on GLD and SLV as short term speculative bets. My positions are small relative to my core holdings in PHYS, a 100% fully allocated gold bullion fund. I also trade PSLV as a speculative trade. While this fund is similar to PHYS in that holds 100% fully allocated silver bullion, it provides leverage relative to gold because of the speculative and volatile nature of silver. I do not hold any silver in my core investment because silver will never be money again as gold will soon be. When gold seeks its true value as a reserve asset, it will vastly outperform silver. To portion any core investment to silver would be to deliberately undermine the purpose of the investment in the first place, to retain stored wealth.
A question that we constantly wrestle with is are gold producers correlated to gold prices as gold is their underlying asset, or are they correlated with the stock market as they stocks? Is there safety in gold producers should the stock market in general experience a pull back? If so, why are the gold producers lagging behind the steady progress being made by gold prices at the moment?
We start with a quick look at the DOW Jones Industrial Average Index (more…)