Gold stocks undervalued versus goldGold/XAU ratio now 5.56! To my knowledge this is the lowest valuation the stocks have had relative to gold in this entire bull market. Either gold is going to 850 or we are seeing a washout in the gold shares to be followed by a more normal valuation for gold stocks. I'm going with the latter and have added more at this level. Another way to play this is to wait for a reversal in the gold stocks relative to gold. In otherwords, look for a day when gold is either flat or down and the gold stocks rally. This has generally been a very good point to go long. The risk is that the two might go up at the same time and you miss a very large move in the stocks. My approach is to simply buy increasing amounts as the price drops. At some point I nail the bottom with my largest purchase. I think HGU is going back over $30 with no problem within months so I'm not too concerned about being down 10% or even 20% on this. The risk/reward scenario here is very compelling.