Why are gold stocks underperforming gold?

Why are gold stocks underperforming gold?

GOLD SILVER PRICE NEWS ~ You can see how during this latest leg of the bull run in gold, that the gold bugs have tended to outperform gains in the underlying metal.

And that makes sense. These companies have fixed costs, and when the price of gold rises, their profits and margins rise as well. So if they make $1 per share when gold is $100, you'd expect that they would be able to make $2 if gold hits $101. Every increase in gold's price over that $100 lets them multiply their profits.

Obviously, it's not quite that simple - but most of these companies are profitable at $500 gold. Why have they lagged gold for the past few months?

There are a variety of reasons, but the main one is that institutional investors (think mutual funds, pension funds, hedge funds) are taking profits on their gains of these 16 gold companies.

Why are they taking profits? Who knows. They might think that the gold bull market is long in the tooth. Or they might be covering losses from other sectors. They might simply be rebalancing their portfolios to not be as gold heavy. Or maybe they're selling gold stocks and buying gold. We can't know why they're selling.

But if you're a long term gold bull, (as I am) then you should be looking at this underperformance in the gold majors as a buying opportunity.

My colleague Jason Cimpl is taking advantage of this opportunity. Yesterday, he released a brand new research report on the five precious metals stocks to buy today. You can read all about this report by clicking here now. It's called Top 5 Gold and Silver Trades for Summer 2011.

Jason is a technical analyst by trade, and he's looking at gold and silver on that basis. He thinks precious metals stocks will outperform for the rest of the summer.

For me, I think that anytime you can buy the largest "blue-chip" type companies in a given sector at a discount to their fundamental trend, you should back up the truck. And my long term thesis is that gold and silver will likely double or triple in price before this bull market in precious metals is over.

So the wind is at your back, and with Jason's technical prowess, you know you're getting a good buy price.

I hope you'll take a look at Jason's research. It's the type of to-the-point investment research that can really cut through all the noise in the market. Read More