Precious metals stocks were abysmal performers yet again today and may continue to be frustrating until such time as psychology changes regarding the long-term outlook for gold — by Americans. What I mean by that is, I believe the gold price is where it is because the rest of the world realizes it needs gold, particularly the Chinese, but in large part, Americans do not. There has been no real move of any consequence among Americans into gold. Yes, the gold ETF has been a huge success, but I don’t see that as a representative proxy for what the public at large has been doing.
At some point I think we will see the gold ETF gobble up tons (tonnes) of gold, and as that happens I think we will see people connect the dots and buy miners. I continue to believe there is going to be an enormous opportunity there, but what matters now is when will it occur. We can’t know in advance, we can only be alert as it starts to happen.
One of these days, gold is going to put on track shoes, and really romp. Perhaps it will take QE3. Perhaps it will start before that. When that occurs, gold stocks will be explosive. But until then, they may stay range-y. I don’t know that willbe the case, but it certainly has been the case, so I thought I would share my best guess as to why these stocks are so unloved/ignored.
Correction: Apparently the above comments were made by Bill Fleckenstein.
As we near the end of QE2, the Fed will up its cacophony of “no more QE.” To the extent that is believed, it may hurt both gold and mining stocks further in the short term. The reality is that the government cannot pay its bills without someone buying its debt. Traditional credit markets will not, so QE will be restarted (under the guise of the economy needs more help) at some point not too far in the future. Some point is likely measured in months rather than years. The only other alternative is to cut federal spending immediately by a Trillion plus dollars a year. That will not happen.
My personal strategy will be to hold core gold positions while cutting back on excess positions with the hope of reentering at current or lower prices. That goes both for metals and mining stocks.