Bill Murphy: Central Banks Are ‘borrowing’ Gold From
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Gold Stocks – A contrarian view on where the next Gold Stock winners will emerge.
Searching 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 – read as food and energy skyrocketing — and little hope for nominal interest rate increases – read as housing too weak for higher rates – negative Real Interest Rates (nominal rates less inflation) 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 – namely Gold stocks.
Wrong!
As Old Gold Bulls we have seen this situation before. A low growth high inflationary environment is poisonous for equities – Gold stocks 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! That’s 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 that’s 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 don’t 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 Stocks 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 what’s the passive indexed money saying?
Firstly it’s 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 stocks and more commentary follow soon…
Watch the video related to etfs
Bill Murphy, chairman of the Gold Anti-Trust Action Committee, talks with Bloomberg’s Bernard Lo about global central banks’ intervention in the gold market. “Central banks stand ready to lease gold in increasing quantities should the price rise.” ~ Alan Greenspan, 1998, Central Banker How Governments Manipulate the Gold Market – A Primer www.fgmr.com
Help answer the question about etfs
Tags: escape, gold etf, Gold Stocks, Gold Trading, Oil Etf, Oil Stocks, silver etf, Silver Stocks, the
November 18th, 2009 at 9:58 pm
Another consideration is that ETF's can be bought/sold like stocks. There is no "holding period" as required by many mutual funds that you purchase through a brokerage account or direct from the mutual fund company. So if the ETF sector is heading down (eg. real estate VNQ), you can get out by simply selling your shares.
November 18th, 2009 at 10:53 pm
You can short the TLT if you want to bet long term interest rates will go up.
Alternatively, you can buy TBT. That is you take a long position on TBT to get the desired effect. TBT is double-short long bond ETF. That is, the return you get on this ETF is the same as that of taking a leveraged short position on long-term bonds.
November 19th, 2009 at 1:34 am
I use Scottrade and have been very satisfied. They have a good trading platform and customer service. They are cheaper than Etrade.
I'm not familiar with Zecco, other than looking at their website. But based on your question, you won't need much in the way of service. They could be a no cost way to trade ETFs. I have noticed a number of questions about them which can indicate a customer service problem. Look their site over and see what you think.
November 19th, 2009 at 8:13 pm
It depends.
If you plan to make a one time deposit, ETFs.
If you're making monthly deposits, funds.
If you're somewhere in between, it depends on the commission you'd pay to your broker to buy the ETF.
One warning, not all brokers let you buy ALL funds for free. Check with your broker first.
November 20th, 2009 at 5:40 pm
etfconnect.com lists all by family. best resource available.
November 21st, 2009 at 3:31 pm
you dont have to subscribe to see what you got a morningstar. go to tools instant x-ray and follow the
directions.
But I'll tell you right now you don't need both mutual and ETF's especially if they have the same theme.
November 21st, 2009 at 8:30 pm
Well you were asking what site shows ETFs and their holdings, which the first responder didn't really answer.
To date, I have not seen a site exactly like this, but for the meanwhile if you hit the Components or Holdings link in the summary page of a ticker in Yahoo stocks, it will at least tell you what is held in any ETF. Good luck.
November 21st, 2009 at 9:14 pm
I don't believe Fidelity operates any ETFs. You can buy and sell ETFs through your Fidelity brokerage/retirement account. iShares is one of the biggest ETF providers.
QQQQ looks very interesting and has returns near or better than Contrafund (FCNTX). FCNTX seems to perform better in bear markets, QQQQ a slight bit better in neutral and bull markets.
November 22nd, 2009 at 12:16 am
bobbrinker.com is the best one for me. Hulbert Financial now part of CBS Marketwatch rates Brinker as one of the best newsletter timers for a long time.
September 17th, 2011 at 12:06 am
It has also got 66 million shares major and a mean daily trading volume of 2,000,000 shares each day. Obviously there are numerous distinct benefit of gold ETF investing.
February 1st, 2012 at 8:08 pm
Actually does not make a contribution, it is the old ‘price / revenues ratio’ that comes into action when pricing a stock. If the mining company can’t deliver, the purchasers will start to look some place else.
The giant gold mining corporations look for little start up corporations that have found gold…
February 8th, 2012 at 2:58 am
Typically for stock and often money also. Oh, another thing…
They could be exploring, they might have had a mine that is now not manufacturing, there might be a million and one eventualities that you do not expect. Be sure that if you purchase a stock, any stock, or a choice on such a stock that you know what it is the company basically does and have a look at their yearly report to find out how well they do.
March 20th, 2012 at 9:19 am
Because gold ETFs trade on the NYSE, you can utilize a sell stop to guard yourself. This is a sell order that's set ahead to restrict your drawback, where if shares fall to a certain point you are immediately out of the position. Above are simply a few of many reasons that explain why millions of speculators are turning towards this area to balance their portfolios.