Sunday, October 11, 2009

Gold Stocks - The Sector To Overweight

Have you ever looked at a chart like the one below and wondered what was I thinking when this item was at the lower left corner? (click to enlarge)

I guess one should have placed all eggs in the basket of a manipulated commodity that doesn't even go by the sound fundamentals of valuation. If you would have done such a dangerous thing, you would have been richly rewarded.

Was the above portfolio the risky juniors miners and penny stocks? No. This portfolio is an equal weighting of the 16 gold stocks that are the bulk of my buy list: AEM, AU, AUY, ABX, BVN, CDE, EGO, FCX, GG, GSS, GFI, HMY, HL, IAG, KGC, LIHR, NEM, NG, PAAS, RGLD, SSRI, SLW. As the chart suggests, this group is just now coming out of a lull off a long term support trend-line if you discount the aberration of the credit crunch of late 2008 and early 2009. Considering that gold is at an all time high now, these mid to large size gold stocks look poised for a strong catch up move to catch gold, which is itself breaking out through its one year resistance level.

The strong out-performance of gold stocks over the past 10 years is a trend that is very likely to continue if not strengthen. The debt pressure on currencies in general and the USD in particular isn't going to go away anytime soon. It is about the only sector that will probably climb no matter what the economy does or what Israel and Iran do. Whether the S&P 500 continues a good climb or is derailed by geopolitical or currency problems, the gold sector should continue to out-perform it.

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