For years we have been speaking and writing about the massive bind the Fed now finds itself in. With price inflation, rising and food and energy skyrocketing, and negative Real Interest Rates looks set to persist for some time.

Now why is that important?

Firstly, not only do negative real interest rates make holding non-income producing assets such as Gold attractive, but an environment where inflation is allowed to have its way and economic growth is sick (stagflation), is tantamount to the perfect storm for Gold Stocks and other Precious Metals!

So what do you do?

You load up on assets leveraged to the price of Gold ETFs namely Gold stocks.

Wrong!

As Old Gold Bulls we have seen this situation before. A low growth high inflationary environment is poisonous for equities and Gold ETF stock funds included. And whilst the storm persist in the equity markets it will either drag gold stocks lower or prevent them from fully expressing themselves to the upside! Thats why we encourage investors to have a portion of their portfolio exposed directly to the metal either through ETFs, Futures or Physical.

Hunting Elephants

There is no doubt that an equity risk premium has weighed heavily on Precious Metal equities and that stabilization in equity markets would certainly benefit such stocks. But thats old news.

What we consider interesting and downright fascinating is the nature of Gold Equities investors should be focusing on over the next year.

Conventional wisdom is that the juniors are where the investment gems lie. We dont disagree entirely.

Over the longer term (3-5 years) the fundamentals certainly favour late stage explorers and emerging producers, but an overlooked market dynamic causes us to lean rather towards their larger cousins.

As we have alluded to above, Gold etfs and other Precious Metal equities are equities and more often than not subjected to the same forces as the general equity market. One such force is the veritable WALL of passive indexed money. By some accounts amounting to several TRILLIONS of Dollars.

And whats the passive indexed money saying?

Firstly its saying that the long period of outperformance by small caps versus large caps bottomed in 2006 and the trend has since been towards large caps.

Secondly...

The trend in large caps from value to growth also looks to have bottomed around late 2006. We define growth as earnings growth of 15% p.a. and/or PEG ratio of around 1.5.

These trends resonated well with us as large cap Gold producers beat out small cap miners over the last year leaving many a gold stock speculator highly frustrated.

Where to find such Elephants that will benefit from these trends?

We would begin by looking at components of the Gold Stocks ETF (GDX) or the Amex Gold Bugs Index (HUI).

Gold ETF Trading - probing for the Golden Goose?

For years we have been speaking and writing about the massive bind the Fed now finds itself in. With price inflation, rising and food and energy skyrocketing, and negative Real Interest Rates looks set to persist for some time.

Now why is that important?

Firstly, not only do negative real interest rates make keeping non-income producing assets such as Gold attractive, but an surround where ostentation is allowed to have its way and economic growth is sick (stagflation), is tantamount to the perfect storm for Gold Stocks and other Precious Metals!

So what do you do?

You load up on assets leveraged to the price of Gold ETFs videlicet Gold stocks.

Wrong!

As Old Gold Bulls we have seen this place before. A low development high inflationary environment is venomous for equities and Gold ETF stock funds included. And whilst the storm persist in the fairness markets it will either drag gold pillory lower or prevent them from fully expressing themselves to the upside! Thats why we boost investors to have a fate of their portfolio exposed directly to the metal either through ETFs, Futures or Physical.

Hunting Elephants

There is no doubt that an equity risk premium has weighed heavily on Precious Metal equities and that stabilization in equity markets would for sure profit such stocks. But thats old news.

What we consider interesting and downright absorbing is the nature of Gold Equities investors should be focusing on over the next year.

Conventional sapience is that the juniors are where the investiture gems lie. We dont disagree entirely.

Over the longest term (3-5 years) the fundamentals certainly privilege late stage explorers and rising producers, but an overlooked market dynamic causes us to lean quite towards their larger cousins.

As we have alluded to above, Gold etfs and other Precious Metal equities are equities and more often than not subjected to the same forces as the general equity market. One such force is the veritable WALL of passive voice indexed money. By some accounts amounting to several TRILLIONS of Dollars.

And whats the passive indexed money saying?

Firstly its locution that the long period of outperformance by small caps versus large caps bottomed in 2006 and the trend has since been towards large caps.

Secondly...

The trend in large caps from value to emergence also looks to have bottomed around late 2006. We define growing as earnings emergence of 15% p.a. and/or PEG ratio of around 1.5.

These trends resonated well with us as large cap Gold producers beat out small cap miners over the last year leaving many a gold stock speculator extremely frustrated.

Where to find such Elephants that will benefit from these trends?

We would begin by look at components of the Gold Stocks ETF (GDX) or the Amex Gold Bugs Index (HUI).

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