Gold for Prudence, Not Mining Stocks
- Gold stocks have just now started to move up from a similar level in 2008;
- Gold stocks remain severely undervalued compared to the gold price. A simple reversion to the mean implies a tremendous upside move.
- After 13 consecutive months of decline, GLD holdings were up over 10.5 tonnes last month. The trend is similar to other gold ETFs;
- Hedge funds and other large speculators more than doubled their bets on higher gold prices this year;
- Increase in M&A – for example, hostile bids from Osisko and HudBay Minerals to buy big assets;
- Apollo, KKR, and other large private equity groups have emerged as a new class of participants in the sector;
- Gold companies' hedging of future production – usually a sign of insecurity among the miners – shrunk to the lowest level in 11 years;
- China continues to consume record amounts of gold and officially overtook India as the world's largest buyer of gold in 2013;
- Large players in the gold futures market that were short have switched to being long.
- Central banks continue to be net buyers;
- To top it off, there's been no fallout (yet) from the unprecedented currency dilution undertaken since 2008 – and we don't believe in free lunches.