While I watch stock and bond markets around the world closely, I have found that the ups and downs we have seen lately -- and we have seen a lot of them -- are not really changing anything about what I do as an investor.

The reason is that I am not particularly invested in the stock market, other than Microsoft (MSFT, news), some large-cap miners, and a handful of smaller (and riskier) exploration and mining-services companies. (Microsoft owns and publishes MSN Money.)

I continue to think of stocks generically as completely uninteresting because of the economic problems we are facing. And yet you can't really be short, betting they will fall, thanks to all the money printing that has gone on and the fact that the Fed could launch QE3 at any moment.

That's not to say there aren't many companies in corporate America that are attractively priced, because there are. Microsoft is my favorite example, but there are others. However, given all the risks that we face, it just seems to me that there will be a far better time down the road, probably during the funding crisis, to allocate money to those kinds of ideas. (That's the crisis I have warned will hit as governments find themselves unable to borrow more money.)

Image: Bill Fleckenstein

Bill Fleckenstein

Besides, between where we are now and the point where we actually have to face -- and start fixing -- our problems, I can't see how anything will do better than companies I expect to benefit from more money printing, although I could be wrong about that.

Discovering the path of least resistance

While I'm on the subject of attractive stocks, the shares of large-cap gold miners do seem perkier, a behavior change that began around July. That is not to say that on any given day they behave exactly the way I (or others) think they ought to, but they have been trading higher, and I think I know why.

One of the reasons I own the big miners that I do (read "There's gold in mining stocks yet") is because last year I began to see an enormous buildup of cash on their balance sheets -- and the potential for that to escalate. I thought that maybe that would make people bullish, but it really didn't because something else was holding folks back. That something was the fact that most people expected the price of gold in the future to be much lower than it is today.

The reason future price expectations matter so much is because of the way miners are valued by stock analysts. At the risk of getting too technical, let's say I have a mine with 10 years of proven reserves, producing 1 million ounces per year, my all-in costs are $900 an ounce, and the current gold price is $1,700. In that scenario, my business is making $800 million a year pretax.

Now those earnings may rise or fall based on whether my production grows or shrinks, or my reserves may last longer or run out sooner. But if we think that in two years the spot price will be only $1,000 an ounce and stay there, then it doesn't make sense to pay too big of a multiple of today's earnings to buy the stock.

On the other hand, if we decide that the spot price might stay where it is, or fall just a little, or even rise, then those future earnings are worth a lot larger multiple of today's earnings.

If you don't mine

Another way to value miners is to calculate what the gold in the ground sells for versus ingots above ground. For example, in the case of Newmont Mining (NEM, news), its 100 million ounces would cost you $350 an ounce if you acquired the whole company. Adding the $550 per ounce that it costs to yank the gold out of the ground means that, at roughly $900 an ounce, the gold with the dirt still on it is a lot cheaper than coins or bars selling for around $1,700 an ounce.

To my mind, the change in behavior since July of the miners I own -- Newmont Mining, Yamana Gold (AUY, news) and Goldcorp (GG, news) -- shows that the shift toward expectations of higher gold prices has finally begun.

That is a psychological sea change. Analysts who have held their future price assumptions for gold prices in the $900 to $1,000 range have just started to bump them up. That can have a dramatic impact. In an Aug. 22 report, the gold stock analyst at Citicorp raised his long-term gold price assumption to $1,050 from $950 and over the next four years to an average of $1,437.50 from $1,156. As a consequence, he upped his target price for Newmont from $55 to $80 per share. That same report contained a table showing that with a long-term gold price assumption of $1,850, his target for Newmont would be $200.

I believe that the concept of a future with higher gold prices is an idea whose time has come.

An ingot for their thoughts?

Another development in the gold sector that I have been following has to do with China. On Nov. 7, Zero Hedge reported on the China National Gold Group's purchase of a miner in Central Asia. And last Wednesday, trading in Jaguar Mining (JAG, news) stock was halted, after reports that Shandong Gold Group (a state-owned Chinese company) is going to make an offer at about a 70%-plus premium. (Trading later resumed.)

A couple of proposed acquisitions in a short space of time does not guarantee that a trend is under way, but it does appear that, at the margin, China is becoming more aggressive about owning a bigger share of the world's gold production. This is something it ought to do, as I have stated many times, and if it makes a few more acquisitions, that could unleash a tremendous frenzy in miners of all stripes.

At the time of publication, Bill Fleckenstein owned shares of Microsoft, Newmont Mining, Yamana Gold and Goldcorp. He also owns gold.

This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.