Off Topic: Gold Stocks Getting Warm...

SD51555

5 year old buck +
Totally random, but wanted to talk to somebody about it. Typically, gold stocks react with the gold prices but at a wilder rate. For example, if gold went up 2%, gold stocks would go up 5% or so. Now, in the past few months, gold has been stable for the most part but gold stocks are starting to get warm and are rising apart from the gold price.

Can't say with any intelligence what it means, but I thought it was interesting that they have broken that price correlation lately. The blue line is gold stocks, the red line is gold bullion. This isn't the exact way to model it, but it's close enough for novice me.

upload_2014-8-20_22-8-31.png
 
:D
 
Kind of off topic but did anyone see the 60 mins I believe story on the way Wall St. Trading really works on last Sunday night. Interesting but certainly explains how the rich get richer and then there is the rest of us. Long story short the biggest stock broker companies have the fastest computers and connections to the main frame computers where stocks are actually traded. They intercept your trade orders and their computers buy the stock a millisecond before you. Then they sell it to you for say a penny more ....... millions of shares of stock everyday. Some young, up and comer figured out the way the companies were doing it and developed a program that currently keeps them being able to use the above process on you. I found the story interesting and I am by no means a computer geek!
 
That and more. I watch the metal markets pretty close. On nearly a daily basis, the gold price gets whacked by about 1% in the blink of an eye and then it'll claw back over the next 30 minutes. The amount of market power it takes to knock down the price in something that quickly is immense. Knowing all that, it's why I don't actively trade. I trade, but I do it to build positions and periodically take gains. I never move into or out of something in one swoop. Apple taught us that lesson. Back in winter 2013 they fell from $510 down to $460 in one day. I called the bottom, and I was wrong. My buddy that started at $460 got shares there, at $430, $405, and $389. Now 18 months later it's up over well over 50% from it's split adjusted bottom.

There are all kinds of shavers out there taking crumbs and slices off us. The one that bugs me most is mutual funds. Unless you're in a specialy fund, you get stuck owning a bunch of stocks you wouldn't otherwise decide to buy. Then they take 1-2% every year in management fees. All for par to sub par performance against the market.
 
That's why if you're going to buy shares in a mutual fund, mathematically you're ahead to buy an index fund. You basically own the " whole market " for about 0.10 to 0.20% of assets. ( what it costs you ). That's a lot less than 1 or 2%. And like you said, since nobody can predict the market's moves or " time " the market, if small cap stocks are climbing & large cap stocks are stagnant, you at least own the climbers. And vice-versa. Compared to actively managed funds, index funds are MUCH cheaper. History has shown that index funds beat about 90% of actively managed funds in performance. One reason is they are basically " buy & hold " - they don't keep trading stocks. With every trade, you pay a commission, which lowers your take. With index funds, you copy the market, not lag behind it due to bad stock picks and paying all those commissions & fees.

Do some research. The public has learned that indexing is the way to go for cheaper, long-term investing. The proof is in the huge amount of $$$ inflows to index funds. Vanguard started the first index fund back in 1974 and now every big mutual fund co. has them. People saw the light. ( I don't work for any investment co. )
 
I don’t follow gold or gold stocks but it appears the spread in percentage is the same over the last two months. Could the gold stock be holding rights to gold purchased previously at a lower price therefore the underlying value is higher which is reflected in the consistent spread?

Just a guess but if the stocks reflect a higher value there must be something that would reflect the difference.
 
I think the institutional money is starting to move back into gold stocks.

http://www.newsmax.com/Finance/george-soros-stock-market-S-P-500-bet/2014/08/16/id/589153/

Here's a snippet of the article. Note the bottom. When Goldman Sachs is giving free advice, run the opposite direction.

Soros nearly doubled his ownership in a U.S. gold-mining companies ETF and initiated new stakes in other gold producers, suggesting the big names in hedge funds continued to have confidence in the yellow metal, Reuters reports.

Soros Fund Management increased its stake in Market Vectors Gold Miners ETF to 2.05 million shares valued at $54 million at the end of the second quarter, compared with 1.16 million shares in the first quarter.

"Gold-mining stocks are considered relatively cheap. It also suggests that Soros may be thinking gold prices are near the bottom of the range," Bill O'Neill, partner at commodities investment firm LOGIC Advisors in New Jersey, told Reuters.

Soros also initiated new gold investments including 1.33 million shares in call options of the Gold Miners ETF valued at $35 million, and 1 million equity shares in Allied Nevada Gold Corp.

Meanwhile, Soros slashed his stake in Barrick Gold Corp. by more than 90 percent to less than half a million shares valued at just $8.8 million in the second quarter after boosting ownership of the gold miner in the first quarter.

"Gold has become increasingly attractive to hedge-fund managers who are long-term investors as real interest rates remain negative," said Axel Merk, a Moneynews Insider and chief investment officer of the $400 million Merk Funds, a family of currency mutual funds and the Merk Gold Trust, a gold ETF.

Investors have stayed away from the metal amid mounting speculation that the Federal Reserve will increase its benchmark lending rate. The central bank reduced its monthly bond-buying program to $25 billion on July 30, making a sixth consecutive $10 billion cut, while it held borrowing costs near zero percent.


Goldman Sachs last month repeated its prediction that gold will drop to $1,050 in 12 months. The bank cited accelerating U.S. economic growth. Friday, gold fell 0.9 percent to $1,304.30 an ounce, paring an earlier decline of 1.7 percent.
 
That's why if you're going to buy shares in a mutual fund, mathematically you're ahead to buy an index fund. You basically own the " whole market " for about 0.10 to 0.20% of assets. ( what it costs you ). That's a lot less than 1 or 2%. And like you said, since nobody can predict the market's moves or " time " the market, if small cap stocks are climbing & large cap stocks are stagnant, you at least own the climbers. And vice-versa. Compared to actively managed funds, index funds are MUCH cheaper. History has shown that index funds beat about 90% of actively managed funds in performance. One reason is they are basically " buy & hold " - they don't keep trading stocks. With every trade, you pay a commission, which lowers your take. With index funds, you copy the market, not lag behind it due to bad stock picks and paying all those commissions & fees.

Do some research. The public has learned that indexing is the way to go for cheaper, long-term investing. The proof is in the huge amount of $$$ inflows to index funds. Vanguard started the first index fund back in 1974 and now every big mutual fund co. has them. People saw the light. ( I don't work for any investment co. )

Not quite an index fund, but still pretty darn close; Vanguard started the Wellington fund in 1929:
https://personal.vanguard.com/us/funds/snapshot?FundId=0021&FundIntExt=INT


When ever someone talks about investing I always say to go with Vanguard, the DIY way isn't too hard to figure out. If anyone is looking for the DIY personal and retirement investing equivalent of Habitat Talk check these out:

http://www.bogleheads.org/forum/index.php
http://www.bogleheads.org/wiki/Main_Page

If you talk to a financial salesman ( they like to call themselves "advisors" ) they will be selling you mutual funds with load fees of 4.5% and expense ratios well over 1%. Use the calculator at the link below to see how much those fees eat into your returns over time:

http://www.buyupside.com/calculators/feesdec07.htm

The salesman may try to tell you that the higher fees mean possibly higher returns and leave out the fact that it means more money in their pocket. And the examples of higher returns over the long term are few and far between.
 
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