Jim Willie: Careful With Those Gold Stocks!

In this great post on SilverDoctors.com, Jim Willie covers a broad range of topics, including the imminent demise of Morgan Stanley, and the possible rehypothecation of hundreds of thousands of accounts.  As if that's not scary enough, he also sees a number of large risks for mining shares.

"The hostile positions of miners versus the corporate firms is becoming stark and clear. The unfortunate outcome is that gold and silver mine output will surely go into worse decline. The Jackass forecast is that from the global mine output factor alone, the physical precious metal prices will rise, while the mining stock share prices will fall. Output risk joins jurisdiction risk and dilution risk for the mining companies. For every mining stock winner, expect 20 to 30 losers."

I'm counting on broad diversification to protect me from jurisdiction risk, but I have to admit that when it comes to dilution risk, I may be swimming naked.  Are you?

Bill Fleckenstein on Gold and Gold Stocks

Bill Fleckenstein seems to have a lot of faith in central bankers--to do exactly the wrong thing,  So much, in fact, that when asked about gold and gold mining shares, he commented:

"I don't see any alternative." 

Hear the entire interview (about 12 minutes) courtesy of King World News.

Jim Grant Channels Conway Twitty: It's Only Make Believe

Jim Grant says we are living in a central bank created fantasy world.

"Gold stocks are astoundingly...  and disconcertingly... ...and dismayingly cheap... ...cheap as businesses and as hedges."

And for the music lovers in the crowd. . .

How much gold is enough for you?

Frank Talk recently had some interesting comments on the gold as an investment.  He started out by noting that the New York Times recently discussed gold as an investment, and discussing the possibility that this is a worthwhile contrary indicator.

The New York Times dedicated a chunk of last Sunday’s paper to gold as a mainstream investment. In other words, gold is now legit -- no longer can it be dismissed as the asset of choice for fringe types with a cellar full of canned goods and a stash of bullion buried in the backyard.

He's not so sure that's the case now though--at least not yet. 

From a recent research note by UBS: “The sense that some investors only trust a gold holding if they can see it and touch it is a clear indication that some investors are buying gold as a hedge against a full-scale financial crisis and currency debasement.”

In a sense, it's the same argument I hear from my brother.  Real estate is "real," but who knows what stocks (or bonds, dollars, etc.) are really worth.

All in all, I agree with much of what he has to say, but perhaps not with the following:

Some extreme gold bulls are urging investors to move half or even more of their portfolio into gold – we are not in that camp. We consistently suggest that investors consider a maximum 10 percent allocation to gold-related assets – half in bullion or bullion ETFs and the other half in gold stocks or a good gold fund – and that they rebalance each year to capture the swings.

Personally, I am weighted closer to 50% in gold, silver, and related equities.  On the other hand, my income is 100% in dollars, and that is what I'm trying to hedge against.

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Fleckenstein Wonders Why Gold Gets No Respect

Bill Fleckenstein is nobody's fool.  His Contrarian Chronicles are often an interesting read.  At the least, you can expect to see an original thought from time to time, and that's quite rare in my opinion.

Naturally I appreciated the following from Mr. Fleckenstein.

As an asset, gold has helped protect and deliver gains versus paper money for 10 years running, yet the popular media heap nothing but scorn on it.

So obvious, but also so vitally important and largely unmentioned by the hacks in the mainstream.  As if that weren't enough, he goes on to include this priceless gem.

I keep waiting for the day when folks realize that if you invest in the shares of a gold-mining company, you basically own a piece of the money-creation machine. It's sort of like owning a piece of a central bank that isn't staffed by losers.

This single article was worth the price of my subscription!


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Will gold enter a mania phase?

As I've said before, DailyWealth.com is often a good read.  In this entry, Brian Hunt explains why gold may explode to much higher prices.  Interestingly, he feely acknowledges that the highest prices we see in this cycle are likely to be irrational.

As we've noted many times in DailyWealth, you can make a good case that this time is different. Never before has the nation with the world's reserve paper currency – which is backed by nothing but faith in a bankrupt government – promised so much to so many people (Social Security, Obamacare, unlimited military commitment).

Think we're already at the mania phase?  Maybe, but take a look at Brian's chart showing gold as priced in euros.  If I'm right, gold will also spike in dollar terms, and I expect it to leave the area of the chart and climb at least 3-5 paragraphs up the page.  Of course then the question will be, "When do I sell?"


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Is China buying gold?

Steve Sjuggerud in his Daily Wealth lays out a very credible scenario in which China passes up IMF gold so as to avoid driving up the price while snapping up gold miners around the globe.

Instead of buying physical gold in the open market (where China would be the 800-pound gorilla in the room), China plans to buy gold mines around the world.

An official from the China Gold Association told The China Daily that rather than buy gold from the IMF, China would buy gold directly by buying gold mines "abroad."

If true, it's not hard to imagine this pushing up prices of both gold and gold stocks.  Before you load up on gold shares though, you might want to look at the chart for GDX (Market Vectors Gold ETF) in 2008.  In that meltdown, gold stocks were crushed like all the rest. 

Do I own gold stocks now?  Absolutely.  Am I "all in?"  Not a chance.



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