The HUI Gold Bugs Stock Index now reflects the market shift from the debate over inflation versus deflation, to the debate of recession versus depression.
HUI Gold Bugs Index Chart
Yesterdays selloff was reflective of the worst of all worlds…
– an indication that the House will not pass the bailout/stimulus package.
– a complete exodus from commodities and a (re)flation trade to a deflation trade.
– continued liquidation and redemptions from hedge funds and mutual funds.
Fundamentally, gold stocks are significantly undervalued to the price of gold. We have just witnessed the HUI Gold Bugs Stock Index get cut in half, giving back five years of gains. The HUI is now back to November 2003 price levels.
2003 price levels with negative real rates, with potentially a coordinated global rate cut, and the largest reflation and stimulus package ever unleashed upon free markets.
For gold and gold stocks, the moment of truth has now arrived. It’s now, or never.
SliderOnTheBlack
1 response so far ↓
1 howard432 // Oct 26, 2008 at 5:24 pm
I posted the following on my blog last week:
I had clients going long gold, spreading gold, buying the bullion and so on BUT there was no sense of a value. Nobody not in their deep 80s has any experience with gold as real money. FDR took us off the gold standard and that was it. Gold is an idea, not a substance.
It is this insubstantial awareness of the metal that makes the gold market just another hype. The ads convince people to buy til they find they can’t sell it and then they just dump it hoping to say alive. The only safe harbors are Treasury Bonds and Notes.
I have comments on this post that also indicate that the “spread” is also a killer unless gold moves more than $50. I’d note that there is also a sales tax in many places too.
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