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Originally Posted by Unregistered
gold has obviously been a good trade over the last 5 years - i remember it being at $400/oz back in 05 or so and it has quadrupled since then. so no one can or should take that credit/foresight away from you.
but as another poster mentioned, part of this run up has been due to the instability of economies, with gold becoming a safe haven. my worry is that part of this has been speculative money, and with borrowing costs pretty low many people have been buying gold on margin.
if we are expecting another 2008 crisis, and it looks like that may be a better than 50-50 proposition right now, then potentially you could have another bout of deleveraging forced by this tightening of credit. and since GDX is an ETF wouldn't it be subject to the same deleveraging forces as well?
full disclosure: i am long gold as well so i hope i am wrong. but i think that it could be awhile before the fundamental story catches up to where gold and gold stocks may eventually fall to. i will probably offload some as well on further strength but i do think there is a longer-term investment thesis
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The price of gold has risen more than gold stocks in the past 1 year. It is still true tracing 5 years back. At this high gold price, the profit growth potential is not reflected at all in many of these gold stocks which I see in near future a huge revaluation in gold miners to reflect this reality. From now onward, the risk is more at the side of gold than gold miners stocks. If gold price drops, the miners may at most drop the same percentage or even less, but when gold price stabilises or starts its new upleg, there is a good chance that these miners may finally play catch up (that means a huge upward price valuation).
Alot of stupid money, deleverage and buy US$ and bond but they are also very dangerous place to be. Safest is gold though the price may be volatile too. I don't think a credit crisis like 2008 will hit again. The current mini crash is probably a flash recession panic and general stock price may as well move up from here to new high. Even if there is deveraging, I think gold may be less affected this time than in 2008 simply because more people have come to the realisation of the nature of the crisis. If gold price can relain high or even go higher, GDX price will be resilient in the face of deleveraging even if there is one soon.
Volatility in gold is common, the last week drop is nothing if one knows that. It has a good run from 1500 to 1900 in a few months and it is a good time to take a rest before the next leg up soon.