Source: http://news.goldseek.com/GoldSeek/1351778820.php
Mr.Hugh Hendry is a successful hedge fund manager with a bit of a rock
star aura in the financial community. He has a colorful personality and
keen insights to accompany his track record of making good money for his
investors. In a recent interview, he said the following:
"I am long gold and I am short gold mining equities. There is no rationale for owning gold mining equities. It is as close as you get to insanity."
I want to thank Mr. Hendry for calling the bottom of the recent
correction in the "Gold stocks to Gold" ratio. Because this was only a
minor/short-term correction in a fledgling new uptrend in this ratio,
Hendry's comment was not as powerful a contrarian signal as the plethora
of articles on how crappy Gold stocks are relative to Gold that
appeared last spring and summer (like this one).
However, this recent comment sure is going to prove to be timely in my
opinion. I would take the other side of Mr. Hendry's trade, but
unfortunately I am long Gold as an investment and long Gold stocks as a
speculation and don't see any rational reason to short Gold. In other
words, I am talking my book just like Mr. Hendry, so take everything I
say with a grain of salt. But I believe Mr. Hendry is going to get
stopped out of his "long Gold, short Gold stocks" trade rather soon.
To be fair, Mr. Hendry also mentioned that he is long Gold and short the S&P 500, which is Gold Versus Paper's trade of the year,
so we certainly see eye to eye on other issues. Gold stocks are set to
go on a tear and I stand by my call that the GDX ETF will be at 80 by
the end of May, 2013. That is my conservative target, by the way, and a
triple digit price on GDX by then is not at all an unreasonable
proposition in my opinion.
Here's the daily action of the "Gold stocks to Gold" ratio, using GDX:GLD as a proxy, over the last 8 months:
Of
course, this is a shorter term consideration over the next few months
or so, and ignores the bigger picture. Here's a monthly "Gold stocks to
Gold" ratio over the past 30 years or so, using the XAU mining index as a
proxy for senior Gold miners:
We
just completed our third positive month in a row for this ratio.
Today's Halloween action also suggests the correction in precious metals
(PM) stocks is over. The silver stock ETF (ticker: SIL) has been
relentlessly strong even during a steeper silver correction. The chart
of the last 8 month's action shows the importance of today's volume on
this early stage breakout higher, with the "silver stocks to silver"
ratio (using SIL:SLV as a proxy) charted below to show the incredible
relative strength of silver miners lately:
When
Gold and silver stocks are leading their respective metals, this leads
to the most consistent and the strongest cyclical bull moves in the PM
sector for both the miners and metals (a la late 2000-2003, 2005-6 and
1973-1974). It is actually to the Gold stock bulls' benefit that Mr.
Hendry and many other hedge funds are short Gold stocks right now, as
their short covering will add fuel to the bullish fire. My subscribers
and I finished buying into a new long Gold stocks position last week in
anticipation of today's action and I continue to believe Gold stocks
will outperform Gold over the next several months, though I expect both
to continue rising.
For the very long term, I am a "Gold guy,"
not a "Gold stocks" guy, but the speculative opportunity in Gold and
silver stocks right now is as good as it gets in my opinion (at least
relative to the obvious bottoming this past spring and summer in Gold
stocks).
If you are interested in speculating in the precious metals sector and would like some assistance, I run a low-cost subscription trading service
that focuses on the shiny stuff and the companies that dig it out of
the ground. A one month trial is only $15. Of course, there is nothing
wrong with avoiding the speculative pool of sharks completely and simply
holding on to your barbarous relics until the Dow to Gold ratio hits 2 (and we may well go below 1 this cycle).
Hugh Hendry`s Investment Commentary - Tracking Hendry`s Media Appearances And Market Commentary
Sunday, November 18, 2012
Friday, November 16, 2012
HUGH HENDRY: Buying Gold Mining Stocks Is 'Insane'
Scottish hedge fund manager Hugh Hendry, the CIO Eclectica Asset Management who is known for his spirited interviews, spoke at the Buttonwood Gathering hosted by The Economist in Manhattan's Financial District today.
About ten or twelve years ago, Hendry said he became a gold bug. In 2006, he changed and became a Treasury bond bug.
Today Hendry said that he owns gold, but wouldn't own gold on its own, and is short the S&P.
"I'll tell you my thinking. That was a wonderful trade for five years leading to the end of 2008. It's been a profitable, but less predictable trade since the intervention of Quantitative Easing in March 2009. So there is an argument for market observations that Quantitative Easing has fortified the S&P versus the performance of gold, but that also may be from the beginning of 2009, gold was so fantastically ahead of itself," he explained.
Hendry added that he's long gold and short gold mining equities.
"There is no rationale for owning a gold mining equity. It is as close as you get to insanity," he said.
The reasons, he explained, is the risk premium goes up when the gold prices go up, ore precarious societies across the world are more envious of your gold assets, and there is no valuation argument against the risk of confiscation, he said.
That being said, Hendry doesn't know where gold will go in the future.
"My only point to you is that I have resigned from the profession of undertaking of coin flipping. I'm not going to tell you where gold is going to be. I have no idea. I'm a student of existentialism....I just want to enhance the probability that I make money come what may."
Source: http://www.businessinsider.com
About ten or twelve years ago, Hendry said he became a gold bug. In 2006, he changed and became a Treasury bond bug.
Today Hendry said that he owns gold, but wouldn't own gold on its own, and is short the S&P.
"I'll tell you my thinking. That was a wonderful trade for five years leading to the end of 2008. It's been a profitable, but less predictable trade since the intervention of Quantitative Easing in March 2009. So there is an argument for market observations that Quantitative Easing has fortified the S&P versus the performance of gold, but that also may be from the beginning of 2009, gold was so fantastically ahead of itself," he explained.
Hendry added that he's long gold and short gold mining equities.
"There is no rationale for owning a gold mining equity. It is as close as you get to insanity," he said.
The reasons, he explained, is the risk premium goes up when the gold prices go up, ore precarious societies across the world are more envious of your gold assets, and there is no valuation argument against the risk of confiscation, he said.
That being said, Hendry doesn't know where gold will go in the future.
"My only point to you is that I have resigned from the profession of undertaking of coin flipping. I'm not going to tell you where gold is going to be. I have no idea. I'm a student of existentialism....I just want to enhance the probability that I make money come what may."
Source: http://www.businessinsider.com
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