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Good analysis. Peter Lynch once advised not to buy gold but to buy gold stocks, for the reasons you outline.

Note that when you say "leveraged to the price of gold," you do not mean that they have owe a lot of money, as in real estate leverage. You mean that a small increase in the price of gold means a large increase in the profits of the companies.

That said, I must admit that I have been a total failure in trading gold stocks. So much so that I just left them off my list of things to consider, and missed this recent rally.

Perhaps I will learn.
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My brother likes buying Gold and Gold mining stocks just because he likes metals. I think because it is shiny and pretty. - Art
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jmho, but I humbly suggest oil and gas stocks as a substitute for gold. Gold is a psychological "thing"...oil and gas is practical, is consumed, not just hoarded. bwtfdik!
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My brother likes buying Gold and Gold mining stocks just because he likes metals. I think because it is shiny and pretty. - Art

Ah, the magpie investment strategy!
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The Analysts are restrained because they want to slow things down so their firms can get in with large buy orders...Traditionally, the mainstream press has tried to avoid covering the gold sector. When they did cover it, they often presented negative spin by the bullion banks. These banks don't want gold to go up because most of them are short. But now they are starting to cover gold with more honest insight. Notice how CNBC covers gold in the afternoon, but not on Squawk Box. CNBC is playing nice now, but would quickly slam gold if they could.

The thing I love about the Goldbugs is the conspiracy theories. There is always some reason why gold is being stomped on and will be ready for a huge break out--really soon. This post nicely combines financial analysts, banks, and the media.
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I read your cynicism load and clear. Lot's of mainstream investors like to laugh at the Gold-Bug conspiracy theories. But they don't have much to say when we point out that there has been phenomenal institutional accumulation of gold mining stocks over the last year. Here are the numbers for Newmont (NEM), which is an institutional favorite:

(Link to Nasdaq.com)

http://www.nasdaq.com/asp/holdings.asp?mode=&kind=&symbol=NEM&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&symbol=&FormType=Institutional&pathname=&page=holdings&selected=NEM

Note that institutional ownership is now 70% (from around 55% in the 1st quarter, I think). In the 2nd quarter, institutions bought 3 NEM shares for every 1 share they sold. But on the surface, there were dozens of press reports in the mainstream media saying that golds allure had faded, and it was a poor long term investment. So the institutions are buying like crazy while the little guys are being told that gold is a bad investment.

Since you discount conspiracies, could you be kind enough to explain this mystery?


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Motley Fool deleted my original post that started this thread. It can be found on the Mining & Metals board.
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Note that institutional ownership is now 70% (from around 55% in the 1st quarter, I think). In the 2nd quarter, institutions bought 3 NEM shares for every 1 share they sold. But on the surface, there were dozens of press reports in the mainstream media saying that golds allure had faded, and it was a poor long term investment. So the institutions are buying like crazy while the little guys are being told that gold is a bad investment.

Gold has been a poor long term investment. It might be fine as a trade however. Note that the link you provided is to a gold mining company, which, although related, is a lot different than gold itself.

My family owns some mining claims in Arizona which are worked occasionally when the price of gold gets high enough. Right now, they are not being worked. It's a poor indicator just by itself, but I'd say the mining companies aren't anticipating any large run up in the price. And if the price does go up, they'll swing into action and mine a bunch until the price comes down. At least, that's the way it's worked in the past.

Since you discount conspiracies, could you be kind enough to explain this mystery?

Here goes: In times of uncertainty people tend to buy gold. Right now, the economy is in the tank, the stock market is in the dumps, the budget surplus has evaporated, and rumours of war are in the winds. Therefore, I think it's reasonable to anticipate some hoarding of gold by the general public. If that happens, gold mining stocks might be a reasonable investment.


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