Gold Stocks - or Gold STACKS?

by Alex Wallenwein, Editor & Publisher
The Euro vs Dollar Currency War Monitor

Gold powers ahead and its paper-derivatives, mining stocks, lag behind - once again.
Same story as last year - or is it?

Which should you be in? Stocks, or stacks?
Here is a gut level test: Which one sounds more solid, more appealing, more reliable to you?

A "stock" of something is a paper that says
"Thanks for entrusting this company with your heard-earned money. We'll try to make the best use of it, but ... well, you know how things can go wrong sometimes, so, if they do - don't blame us!"

A stack of something, on the other hand (depending on its height), is something that says:
"Sit down and rest on me. I'll be there for you when flying doo-doo meets the fan paddles. I will not go away."

There is no better way to make that point visual than the following chart:




Witness the huge up-and-down swings of the Gold Bugs Index (HUI) since 2003. (Unfortunately the time scale on the bottom gets messed up when trying to extend the time horizon on Stockcharts' set up). While establishing this giant sideways pattern, gold quietly and solidly kept moving up - and up - and up.

Fortunately, the latter fact helps to make one thing very clear: Once the HUI breaks out of its three-year consolidation pattern, it will make some serious fireworks! In that respect - and in that respect only - can one make an argument that stocks are "better" than bullion.

But, at rock-bottom, gold stocks have really only one advantage over gold: Depending on the phase of the investment cycle you happen to be in, this advantage can be huge - or it can actually be a negative.
That advantage is - familiarity.

Currently, this advantage is huge. A stock is a stock. Non-PM investors may be unfamiliar with the concept of investing in something that moves with the price of gold - but they are very familiar with how to buy, hold, and sell stocks.

A stock is a stock, and any broker can buy one for you ...
Read the entire article at FinancialSense.com : http://www.financialsense.com/editorials/wallenwein/2005/1009.html