The best time to buy stocks is when nobody wants them, and the best time to sell stocks is when everybody wants to buy them. It's a simple concept.
Nobody wanted stocks last year, but I said to buy because of the massive liquidity injections into the economy. Now that stocks have been performing, everyone wants them. Eventually, people will take their profits and the market will go lower.
Right now, it seems nobody wants gold stocks. Heck, it's been more than a year and they've done practically nothing as a group.
The many reasons for the sector's underperformance are spewing out everywhere: ETFs have taken over; production costs are rising; gold is falling; deflationary credit crunch leading to financing risks for projects.
The theories are partially true. However, with gold stocks relatively cheaper than gold itself, gold investors may soon want to turn back and rebalance the discrepancy between gold and gold stocks.
While timing is a key issue in today's market, if gold holds at these levels or even climbs slightly higher above 1700, I would anticipate gold stocks moving much higher.
And if the recent margin cuts by the CME are enough to entice speculators back into the leveraged market, gold may very well go back above 1700 shortly.
We Just Don't Get It
For 99.9% of the world's population, nominal vs. real is a very difficult concept to grasp. That's why governments around the world can print so much and get away with it.
The general population has often voted in power those who pour free money onto society. The printing helped Chavez get another term; it helped Obama get the same thing.
Fundamentally, it doesn't make sense. But most things in life rarely do. I am sad to say that our North American education system doesn't make an effort to teach the concepts of the financial markets. The general population has no idea what's going on with the world's finances and truly believe in the euphoria induced by the printing of world governments.
Perhaps the reason for the lack of education is so that governments can continue doing what they're doing.
Hoard your gold to protect against the inflation we bring onto ourselves.