my theory on gold stocks...

Gold's rising, yet many gold stocks are not following... Why?

The majority of ordinary financial participants still believe that gold's recent rise is as a result of the impending war with Iraq. Constant comparisons (and rightfully so) are made between the current rise in POG, and with the rise that occurred during the Gulf war in the early 90's.


Common conclusions resulting from this comparison are that:

1. The impending war with Iraq has pushed up POG.

2. Other drivers are secondary, and not of any great significance.

3. The war with Iraq will be swift and conclusive... and the resulting fall in POG will be very large.



I agree with point (1) partly... it has been ONE of many factors puching up POG.

I disagree with point (2) vehemently.

I agree with point (3). A sniff of victory in Iraq is likely to lead to some type of negative market reaction...but only for a short period of time.



Gold's primary driver over the last two years, imho, has been the depreciation in the USD, and the very poor performance of other asset classes. I see no change in either of these drivers in future.

It is thus my belief that gold will contine its rise following the Iraq war... and that gold's strength will catch the market by suprise. Many market participants who dismissed gold's rise will have to re-evaluate their initial prognosis...

... extraordinary gains in gold equities will follow.




** All in my humble opinion **