One of the biggest conundrums over the last twelve months has been the massive disconnect between the price of physical gold as traded in the futures market and the price of gold mining stocks.

One would think that, as physical gold prices rise, the guys that dig it up out of the ground would see their stock prices go up along with it. The same way that oil stocks will typically rise as oil rises in price.

However, over the course of the year we have seen gold prices rise from $1,300 to as high as $1,900 and change, and yet none of the major or minor gold gold producers have been able to make sustainable new highs.

The two biggest gold stocks I follow are Newmont Mining (NEM) and Barrick Gold (ABX). If you look at these two stocks, you will see that they have been a total snooze fest. The only people making money off them have been range traders, because these stocks have been unable to break out of their trading range.

If we look at Newmont Mining we can see that the stock is still trading at the same level this October as it was in October of 2010 ...

Yet, one year ago, gold was trading at approximately $1,300 an ounce. Today gold is trading at over $1,700 an ounce!

Barrick Gold has performed even worse. The stock is virtually unchanged since October, 2010! Back then, the stock was trading at $47 and change. Since that time, gold prices have gone up $400 per ounce, and yet Barrick is still trading at only $47 and change ...

If you look at the junior miners, as measured by the ETF GDX, they have performed just as poorly ...

What's My Point?

The point I am trying to illustrate is that gold stocks are cheap -- very, very cheap.

The primary theme to this trade is that, if you believe gold prices are going higher, then you have to believe that the gold stocks represent compelling value down at these levels.

The bet here is that you are going to get an upward break out. That is, we will see these stocks break out of their consolidation pattern and break out to the upside. When that occurs, the moves higher in these stocks will be compelling and dramatic.

Over the intermediate term, these stocks may sit like lumps in your portfolio as they waffle around. But if you believe, as I do that gold is ultimately destined to march much higher, then the prices that you can buy these gold stocks for today could prove to be ultimate bargains in less than a year from now.

Long story short, it's time to buy gold stocks!

Teeka Tiwari

Editor - The Tycoon Report