Hi Esh, the various experts of the world gold scene have been addressing the issue of why gold got sold off during the recent plunge. The consensus seems to be that margin calls were the main reason - ie. those that had leveraged up on markets were forced to sell anything with liquidity and cash value to settle. As such, they say that gold 'did its job', in terms of being store of liquidity - but in terms of stocks and being a safe haven, "when the margin clerk orders a sell it's everything and anything that comes under the hammer". This has come from a large number of experts, analysts, and company chiefs etc etc. Although it seems to be a handy excuse, I agree with this to a certain extent given that it mirrored events during previous sell-offs ('87, 2008/09). They also point to the fact that low interest rates and unlimited stimulus are positive factors for a significant rebound in the price of the metal and stocks - which we have already seen play out over the past couple of weeks.
Legendary investor Rick Rule constantly points to the Barrons Gold Chart to inform (and reassure) investors of what's to come
In terms of the pricing of the majors, I also agree that stocks like NST are overvalued, and have followed your posting on the pricing of resources in the ground v share price and capitalisation. I would not go near it, but think that in the current environment where there are few 'places to hide', great value can be found in mid-tier gold stocks trading at 2-3 times earnings, and those that have little or no debt. Easier said than done, but they are out there, and offer very good upside compared to a host of the majors.
I also agree on the fact that gold's attraction as a store of value and safe haven also work against it - consider the fact that precious metals as a percentage of investment portfolios over time averages around 3 per cent. In the 80s it was around 7-8 per cent. It's currently around .5 of a per cent. So once mainstream or a significant amount of investor interest returns to the idea or action of restoring gold/silver to portfolios - even if just an extra percent - it's likely to cause a significant rise in demand. As to whether large multi-billion dollar hedge funds and high net worth billiionaires etc can also get their shares, along with major banks and central banks remains a moot point and who knows how it will play out - it seems that hedging bets is the best of a poor lot of choices for the ordinary man in the street at this point.
In regards to central bank buying of gold, we may call the Russians and Chinese many things, but they're not widely accused of being stupid.
