Royalty Companies set to Underperform?

The COT numbers showed the all time second biggest net short gold position by commercial traders, which should be bearish in the short term.

If there is any pull back or consolidation, and I think there is a pretty decent chance of one occurring, two companies to be wary of are RGLD and TRE, both of which employ a royalty model.

Neither company really participated in the recent gold and HUI rally. The only caveat to that comment is that these two companies tend to be less correlated (for some reason) than the average gold mining company to the Gold indices, so it's possible that they may hang tough on any pullback. Still, I wouldn't bet on it.

Comments: TRE went nowhere fast during the recent upswing. With no significant royalty payments on the horizon and with press releases that would be best described as "fluff", it's probably not a big surprise.

Comments: RGLD, a fully developed company whose royalty revenues TRE could only wish for, also did not respond very positively during the recent gold rally. The surprising thing was that there was little bounce back after the recent share offering was completed. RGLD has solid royalty revenues from various properties, but with a P/E ratio of 44.7, it may be vulnerable.