Gold stocks normally amplify the gains from gold. If gold goes up 10%, then a good gold stock should go up 20%. So traders look for this ‘leverage’ to the gold price in gold stocks.
That was until ETFs became such a big force on the market.
Now traders can invest directly in gold ETFs with borrowed money to get the same effect. It saves having to do all that annoying research into a gold company.
So with all that money heading for the ETFs – instead of the stocks – the gold price and gold stocks are diverging.
It looks like some of them are even short selling the gold stocks to reduce their risk. This suppresses the price of the gold stocks even more.
But the ETFs can only push this trade so far.
For one thing, wherever the price goes, gold stocks are still worth the price of their future cash flows. And as the gold price rises further, so does the stock’s value. Gold stocks at current prices are incredible value.
And good value will lead to good buying.
Australia Gold
That was until ETFs became such a big force on the market.
Now traders can invest directly in gold ETFs with borrowed money to get the same effect. It saves having to do all that annoying research into a gold company.
So with all that money heading for the ETFs – instead of the stocks – the gold price and gold stocks are diverging.
It looks like some of them are even short selling the gold stocks to reduce their risk. This suppresses the price of the gold stocks even more.
But the ETFs can only push this trade so far.
For one thing, wherever the price goes, gold stocks are still worth the price of their future cash flows. And as the gold price rises further, so does the stock’s value. Gold stocks at current prices are incredible value.
And good value will lead to good buying.
Australia Gold
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