Money into the Gold Stocks?


"Strangely enough, big money has been flowing into those gold stocks. . .especially in the last month."

Gold stocks have done relatively well in the past 3 months. It is not inaccurate to say that they have been the only game in town for those who are either long stocks or out of the market. Strangely enough, big money has been flowing into those gold stocks during that same period, especially in the last month. An analyst has commented that as much as $2 billion of new equity financing has taken placed during this rally versus near zero debt financing. It is not easy to decide who is making the better deal: investors buying the gold shares or miners loading on cash after a strong rebound. Are investors convinced that much better times lies ahead or are miners not taking any chances after the great fears they had last November? Or both? Only time will tell.

For sure, these financings have caused a lot of dilution, which in many cases, was probably not necessary. Unless gold explodes in the longer term as we expect, this dilution could have a negative impact on stock price in the weeks ahead.

As expected, gold stocks, using the HUI as the benchmark, came back down 21% to support at $250 and rebounded 12% to the current level.

Similar to gold, stocks could go in either direction from here, to new highs or towards the lows for additional testing. Again here, we think the odds support the former.

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