The “Gold Beta” Of Mining Stocks and Why We Continue To Avoid Them
Tuesday, November 15, 2011 at 08:01PM
Silver Prices

Using gold stocks to increase exposure to gold is a terrible strategy in our view. Leverage is not a constraint in modern finance. Derivatives, ETFs on margin, leveraged ETNs, and leveraged ETNs on margin all serve the same purpose as a trader using mining stocks to increase exposure to the gold price, the difference being these instruments have a direct relationship with gold. Our preferred strategy is an options trading portfolio that is traded to optimize and maximize potential profits, using options that are directed based on the price of gold with no other factors influencing their performance.

The gold bull using these instruments will always be rewarded concordant to his view, when gold prices rise. The gold bull using mining stocks to gain exposure to gold will usually be rewarded with a rise in gold. It is this dubiety we aim to avoid.

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