Royal Gold (RGLD - Free Report) is a $5.6 billion gold miner that has rallied 38% this year while its chosen metal has notched a 10% gain, as measured by the SPDR Gold ETF (GLD - Free Report) .
But the stock has fallen to a Zacks #5 Rank Strong Sell this month based on declining earnings estimates.
In the past 60 days, the current fiscal year (which just began in July) saw analysts drop their EPS profit projections from $1.61 to $1.45.
Now that might not seem so bad on the surface, but it spells -6% "growth" for the year.
Okay, even that might not bother you as a gold-mining investor.
But it always pays to consider two major elements of the gold trade that I have been pointing out for the past 10 years:
1) Gold is NOT the inflation hedge that investors thought it was decades ago. In a world where fiat currencies and central bank hegemony have proven they can stabilize and foster the global economy, gold has become nearly irrelevant as a hedge.
This is not a theory. The behavior of thousands of institutional investors controlling trillions in wealth has validated that they believe and act on the fungibility of central bank monetary policy and liquidity management (bonds and rates).
And I'm not talking about speculators acting on "money printing bubbles."
The US economy is part of a global ecosystem of "bonds and rates" liquidity.
And... when it comes to the currencies we use for global econ measuring sticks, it's all relative.
2) Which brings me to the other major element that most wanna-be global-macro analysts miss: Currencies ONLY move in relation to each other.
The logical conclusion: If you believe that an inflation threat will significantly drive the US dollar DOWN, then you would clearly benefit by shifting assets to the other major economies/currencies like Europe and Asia.
But you have to ask yourself... Do you really believe that the US economy and stock market are going to "hell in hand-basket?"
If your answer is "No," then why would you be so eager (or crazy) to focus your attention on hedging your "dollar inflation risk" by buying gold?
While some investors spend all their time listening to gold bugs like Peter Schiff or Jim Rickards, the rest of us are TROUNCING their returns in the stock market where earnings growth can absolutely clobber any gold-currency hedge you might construct -- no matter what the USD does!
If you doubt what I'm saying, just look at multi-year chart of gold vs the US dollar.
What you'll see is the ebb and flow of gold, as it gains value on dollar weakness and then swings back to weakness on dollar strength.
And you might notice that year-to-date in 2017, while gold is up 10%, the US dollar may have just bottomed in September at -10%.
If there's any trend of interest rates heading higher, the US dollar is sure to follow.
And that means gold is headed lower.
If I'm wrong, your best course would be to buy the euro currency. You could make a lot more on some insane inflation burst like we saw in 2007 when oil went to $150 and the euro to $1.60.
But don't buy gold or gold stocks. You will do much better in equites, or a simple "It's All Relative Cooker Says" currency hedge.
The Barbarous Relic
I could be wrong. And I should reveal my bias in all this macro-monetary analysis...
I believe, as John Maynard Keynes taught us nearly a century ago, there is no place for the yellow metal in the global monetary system where central banks have proven FIAT RULES and IT'S ALL RELATIVE.
Disclosure: I maintain net short positions in gold derivatives, including futures, options, ETFs and selected equities.
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