Time to Pull the Lever – On Gold

Gold closed at $1,716 per ounce last Friday, almost $80 below the peak of $1,791.75 it reached three weeks ago. The drop was widely attributed to continuing global economic uncertainty and speculators taking profits – which means the experts have no idea what really happened. We don't try to second-guess short-term fluctuations here at Casey Research, but instead keep our focus on the bigger picture.
In the greater scheme of things, a 4.2% decline is not a significant drop for gold; for a savvy investor, it's another chance to buy bullion cheaper. We're not alone in thinking that way: Reuters reports that gold holdings of metal-backed exchange-traded funds grew over this period. There are indications that Indians preparing for their festival season pushed demand higher as well.
An even better buying opportunity can be found with the gold equities. While gold was down 4.2% from October 4 to 26, gold stocks fell by 5.3% at the same time.

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The difference isn't all that big – so why do we think it's important? First, the decrease would have been much greater if we'd cheated a bit and used the numbers as of two days earlier, underscoring yet again how volatile our market is. Second, the current decline in the sector is likely to be short-lived due to the traditionally stronger fall and winter season we're entering. Third, the inherent leverage gold stocks carry over the price of the metal should deliver better-than-bullion returns when they rebound – a fact big investment funds have been taking advantage of for some time.  (more)