Jesse is on to something here. If you are sure that gold is going to be the premier reserve asset in the future monetary system that replaces the current debt dollar system, what better trade than to long that reserve asset and short the paper of the old system? Stocks did well during the last big run in gold back in the late 70s and before that during the great depression. Gold was money back in the depression and in the 70s the paper system was not yet saturated with debt like it is today. Mining stocks will lag big time and many will end up being nationalized when paper gold is eliminated and Freegold emerges.
17 June 2011
These are the established companies for the most part.
One can speculate endlessly for the reasons, but it looks to me that there is a paired trade going on, of long bullion and short miners. That is similar to one of my favorite paired trades this year, long bullion and short a broad stock index or the financial sector.
If this is true, if gold breaks out and the stock market recovers somewhat, the miners will play catch up.
But if the stock market falls apart, the miners are much more vulnerable to a selloff than bullion. That is the reason for the paired trade I believe.