Sell ABX and buy the bullionMany analyst like John Embry and David Chapman are recommending investors to reduce their exposure in the precious mining stocks and to increase their position in the bullion. If you don't want to purchase the actual bullion, you can achieve the same results by purchasing shares in a closed-in fund like Central Fund of Canada CEF.a or by putting money in the bullion mutual fund like Millenium Bullion Fund MBF100. Both are RRSP eligible.
** Interesting comments I received from Nick Barisheff, President of Bullion Management Service Inc. **
The mining stocks tend to lead the way in a new bull market with the metals themselves outperforming in the long run. Currently the mining stocks are confirming the new trend and leading the way and as such should be held in the equity compnent of a portfolio with the Bullionfund in the cash component. Over time, as the bull market progresses, it would be prudent to reduce the equity holdings and increase the bullion component. During the 1970's bull market, gold increased by 2,400%, Silver by 2,300% platinum by 800% and the mining stocks by 900%. With mining stocks you need to be careful with respect to watching the equity markets and the exchange rates in different countries. When the equity markets take the next leg down in what I believe is the next step in the secular bear market the mining stocks may suffer a temporary decline as they will be sold off with other equities. Exchange rates are a factor in mining stocks in that the South African gold stocks such as Durban Deep, Gold Fields and Harmony have underperformed because the Rand has nearly doubled in US dollar terms. Their profits are about the same as they were when gold was $300/ounce. I would avoid hedged mining companies completely.
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Because of their large hedge position, ABX will not profit from high future gold price. By having a mixed portfolio of non-hedged gold producer and the actual bullion you will part of the party when the great creation of wealth to the GOLDBUGS happens.