Storm in a Gold Teacup

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A broader survey of resources stocks indicates powerful portfolio switches from certain sub-sectors, including gold, into iron ore stocks, along with coal stocks, and also, once again, oil stocks, which do not fall strictly under the umbrella of the mining classification.

The dollar gold bullion price has retraced by around 14% since it traded at nominal records around $1,030/oz just over a month ago. Over the period, investors across the world have savaged gold stocks just as the carnival appeared to be warming up. High flying names have been battered, day after day. Kinross, for months a leader in the Tier I global grouping, has lost more than a quarter of its value in just a few weeks.

A broader survey of resources stocks indicates powerful portfolio switches from certain sub-sectors, including gold, into iron ore stocks, along with coal stocks, and also, once again, oil stocks, which do not fall strictly under the umbrella of the mining classification. With the exception of a few highly selected stocks here and there, platinum stocks are also out of favour, despite constant yelling that the platinum metal price is certain to continue into orbit. But then, copper stocks are also underperforming, despite a metal price that bounces along within a breath of record levels. Silver stocks have also gone out of fashion.

Just what kind of a storm was it that hit the gold stocks carnival? Make no mistake about it, a good number of gold stocks have posted meteoric increases...

There appear to have been two key issues at play. Since at least the onset of the dollar's latest - and protracted and ongoing - bear market late in 2001, gold bullion has shown itself up to be primarily a global liquidity play. During each period since then, gold bullion prices have risen when global interest rates, but particularly US interest rates, have been reduced, boosting global liquidity.

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