My take on gold is, if you view gold as an alternative global...

My take on gold is, if you view gold as an alternative global reserve currency/store of wealth (which I do) then looking at gold from a historic stand point it is undervalued relative to other financial asset classes.

That said, at present gold miners' ratio to gold itself seems to be even more undervalued than gold (though the market is correcting that mispricing rather quickly).

So at this stage if you are bullish (or even neutral) on gold then gold miners would seem to be the better investment.

That said, just because something is undervalued doesn't mean it cannot become even more oversold, which was the case for gold over the last couple of years, but it seems in recent months the market has found its catalyst for correcting for this misallocation of capital... negative nominal and real interest rates.

With high debt levels in developed nations around the world coupled with poor demographics (ie declining working populations) is leading to slow to no growth in nominal GDP which is crippling for debtors and yet creditors are also likely to suffer because slow/no growth leads to defaults...
The solution for our current economic models is that the world's economies needs higher productivity and population growth OR lower levels of debt...

Unfortunately productivity and population are trending down (maybe because there is too much debt which is eroding confidence), only making the problem worse so monetary policy will be forced to resolve the issue (unless the world is happy to accept 30 - 50 years of low/no growth in developed markets to pay down existing debt, because that's how long it would take).

How they will solve it is via negative real interest rates (ie financial repression - inflation higher than interest rates) which in places where inflation is low (which is like everywhere) will mean negative nominal rates.

Yet something funny happens when nominal interest rates go negative - people begin to pull their cash out of the system and store in home safes...

And people begin to even question the principle of their domestic currency being a "store of value". Some inevitably have doubts about the future and begin to opt for more tangible, liquid, durable and internationally recognised store of wealth and begin to acquire gold...

http://www.bloomberg.com/news/artic...n-japan-as-sub-zero-rates-spur-call-for-haven

I suspect the same jump in gold demand will occur if/when central banks opt for helicopter money.

However the problem at this stage is that the gold supply is both inelastic and in decline.

So whilst gold as a "no yield" store of wealth, doesn't make much sense to the mainstream investor in a world of nominal gdp growth (debt-expansion) and opportunity. Yet in a world of debt-deflation and crisis, which we are now in, "cash is king"...

But this time, "holding cash" will also be at a cost (negative nominal interest rates) which will begin to make gold appear as if it provides a positive return (when really it still only provides a store of wealth as the value of cash is being debased against gold)...

This is the "rational catalyst" for gold, sentiment will also play a large role, and that's the biggest thing that has changed in the last 6 months - gold now has upward momentum in all global currencies, and has even outperformed bonds in the last 12 months coupled with global stock markets beginning to trend down...

So if concerns about the world economy and the sustainability of the financial system linger gold will likely drift higher not just because it's a store of wealth that can't be debased quickly (ie constrained by mine supply) but also because gold tends to take on the properties of a Giffen Good once it gains momentum and reflexivity begins to play out as it gains further mainstream attention.

So I'm not one who puts too much stock in gold bug conspiracy theories about long term manipulation, but I do believe in human nature and water eventually finding its level.

And simply put, there has been too much debt created in our system (which is inflationary) which has been allocated to non-productive investments which is now stifling growth as debtors attempt to pay it back (deflationary) and it's choking the economy out and preventing it from functioning properly and at some point it will need to be addressed through currency debasement or default.

Default will likely be seen as too painful, so I'm betting central banks and governments will opt for debasement.

Gold is the canary in the coal mine, but what is slow in the beginning will be a rush by the end, and I suspect we may only be 6 months into what I'm expecting will be a 3 to 7 year process, in which the gold miners will be the best way to play it for at least the first 2 to 4 years.