Where is the leverage to gold?

Over at Zero Hedge there is a rant about how gold and gold stocks are better investments than the stock market and how there is a Wall Street conspiracy to suppress the gold price and keep the "dumb" investors in stocks. With the Bank of Japan's latest move to fight deflation and seemingly to start another round of global competitive currency devaluation, it does certainly make some sense to hold some gold in a portfolio. However, I remain of the opinion that it makes no sense for gold bulls to hold gold stocks over bullion. Consider this chart below of the price of gold compared to the Amex Gold Bugs Index (HUI). The top panel shows the price of gold in black and HUI in red. The bottom panel shows the HUI/gold ratio. A rising ratio indicates positive leverage to gold and a falling ratio shows falling leverage. The HUI/gold ratio rose and peaked out in late 2003. It then fl...