The Anti-Stock
By David Galland
[A note from Doug Casey , founder of Casey Research: Just how well will gold shares hold up in a steep sell-off of broader equity markets? David Galland, Managing Editor of our International Speculator concisely answers that question below. In addition to reassuring those of you with an interest in gold, his findings should serve as an important reminder that the really big returns will come to those willing to be bold when everyone else is timid... and, in time, timid when everyone else is bold.]
Here at Casey Research, we remain extremely bullish on gold. But we don't want to get too smug about being on the winning side of the gold bull market. It is critical to keep in mind that bull markets make investors feel much smarter than they actually are.
Consequently, it is when things are really going in your favor – as they have these many years now in the gold market – that you have to be most on guard, because pride really does come before the fall. For proof of that contention, just think of those people you know who were profitably early into the dot-com bubble, but failed to sell when the selling was good.
So, being on guard, I thought it worth revisiting the question of how gold stocks perform during a broader stock market decline.
As you can see from the chart below, while gold stocks and the S&P 500 can both move together, they can also move in distinctly different directions...especially when the S&P 500 is falling sharply.
[A note from Doug Casey , founder of Casey Research: Just how well will gold shares hold up in a steep sell-off of broader equity markets? David Galland, Managing Editor of our International Speculator concisely answers that question below. In addition to reassuring those of you with an interest in gold, his findings should serve as an important reminder that the really big returns will come to those willing to be bold when everyone else is timid... and, in time, timid when everyone else is bold.]
Here at Casey Research, we remain extremely bullish on gold. But we don't want to get too smug about being on the winning side of the gold bull market. It is critical to keep in mind that bull markets make investors feel much smarter than they actually are.
Consequently, it is when things are really going in your favor – as they have these many years now in the gold market – that you have to be most on guard, because pride really does come before the fall. For proof of that contention, just think of those people you know who were profitably early into the dot-com bubble, but failed to sell when the selling was good.
So, being on guard, I thought it worth revisiting the question of how gold stocks perform during a broader stock market decline.
As you can see from the chart below, while gold stocks and the S&P 500 can both move together, they can also move in distinctly different directions...especially when the S&P 500 is falling sharply.
Notice the time period around the last big stock market meltdown in 2000.
While there were spikes in the volatility of gold stocks during that period, the general trend for gold stocks was solidly up...at the same time that the general trend in broader stock indices was decidedly down.
It is also worth noting that while the market suffered a solid "thwapping" (a technical term meaning a hard slap up the side of the head) during this period, the thwapping did not result from a monetary crisis, nor even from any particularly dire economic fundamentals, but rather, from the panicked unwinding of a speculative bubble in dot-com stocks.
By contrast, a real crisis might trigger the next big move up in gold – a real monetary crisis that begins with a falling U.S. dollar. The picture above paints a pretty clear picture of gold's – and gold stocks' – role in a crisis.
Sit tight, and you'll be more than alright.
While there were spikes in the volatility of gold stocks during that period, the general trend for gold stocks was solidly up...at the same time that the general trend in broader stock indices was decidedly down.
It is also worth noting that while the market suffered a solid "thwapping" (a technical term meaning a hard slap up the side of the head) during this period, the thwapping did not result from a monetary crisis, nor even from any particularly dire economic fundamentals, but rather, from the panicked unwinding of a speculative bubble in dot-com stocks.
By contrast, a real crisis might trigger the next big move up in gold – a real monetary crisis that begins with a falling U.S. dollar. The picture above paints a pretty clear picture of gold's – and gold stocks' – role in a crisis.
Sit tight, and you'll be more than alright.
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