Gold stocks vs. SPX – Big picture

Periodically, angst crops up in the gold sector with worker bee gold bugs decrying the evil forces of manipulation and calling for the heads of the bull captains who keep ordering the troops up Hamburger Hill, only to be mowed down over and over.

It’s the way the gold sector works.  Swallow and digest ideology and then go get mowed down.  Then get pissed off and in the worst case, sell out and swear off the sector and the charlatans that promote it, right before the next head spinning rally.  It’s good fun.

Monthly HUI-SPX shows how long the latest consolidation (of gold stock dreams vs. broad markets) has been in effect (since early 2009).  The ratio appears to be readying for some kind of gold bug washout as it did in ’03 to ’05, ’06 to ’07 and again, dramatically in 2008.  With all these shakeouts along the way, the thing has managed to go from .0263 in 2000 to .39 this morning. That’s kind of a good gain for patient people, wouldn’t you say?

As recently as February, it was impossible (for me anyway) to tell whether a gold stock selling or buying opportunity was coming.  That is because (primarily but not exclusively) the yield on the 30 year bond had reached but not definitively pierced the upper boundary of the ‘continuum‘.  The answer came and caught precious metals, commodity and ultimately stock bulls off sides and here we are today; potential deflation scare upcoming if all is to remain nice and ‘normal’.

I am not going to continually go over the reasons why the gold sector is entering ‘buying op’ mode.  It’s a free blog after all.  But for those that are ready, the misperceptions game is working for them, as opposed to against them, as for the majority.  We have downside targets and the key is to keep mental balance… and cash.

This ultimately includes all major markets and market themes.  But again, the gold sector is the first mover and the prime fundamental beneficiary of what is in play now.  Many will become angry and frustrated.  I will just manage risk, have patience and take the payoff compliments of emotional people when the time is right.

Edit (9:44) Very worthwhile link to KWN interviewing Mr. Gold, Jim Sinclair.  Yes, he is one of the gold captains – probably THE gold captain of captains – alluded to above.  But his heart is in the right place.  This stuff is all true, but it is incumbent upon the individual gold herd members to navigate through the mine field effectively.  No radio sound bites, financial websites or even smart alec bloggers are gonna get the job done for the individual in a 1-size-fits-all manner.