Thursday, October 15, 2009

Senior Gold Miners - More Perspective

I am surprised at the lack of bullishness in the Gold community in regards to Gold stocks. Yes, risk is high. C'est la vie in the casino we call the stock market.

I wouldn't be putting new money into the senior Gold stock sector right now, but I would be getting ready to buy on any 4-8 week correction. It is important to keep a perspective of where we are in this secular Gold stock bull market. We are in the 2nd cyclical bull market and it just started in the fall of 2008. Gold stocks DO NOT MOVE the same way general stocks do, which is why they are a good countercyclical asset class when the stock market is mired in a secular bear market (as it is now).

The fundamentals for Gold miners are set to improve again as the economy sinks further into the abyss. This is the irony of Gold stocks - they often thrive when the economy is doing poorly. People concerned about Gold stocks crashing again with the stock market are ignoring history. Can corrections in Gold stocks be sharp and scary? You betcha. But they are buying opportunities and the next Gold stock correction will be no exception.

Here's a 10 year monthly chart of the Gold Bugs' Gold Mining Index ($HUI) to show you what I mean in terms of keeping perspective:

And please don't misunderstand my message: I am not advocating novice investors pile into senior Gold stocks right now. It's too far into a shorter-term upward move. But when the necessary 4-8 week correction occurs in this sector at some point (could even start later this month for all I know), don't get sucked into thinking Gold stocks are about to collapse. Ain't gonna happen. They will correct sharply and provide investors and speculators with another chance to buy more before the next thrust much, much higher. When looking at the above chart again, one quickly realizes that the bull market would have have helped bail out bad timing mistakes during a similar point of the last cyclical bull in Gold stocks. Me, I've got that trading bug in me that forces me to wait for a pullback before I'll buy anything.

If you're not interested in playing in the casino, then physical Gold will remain a safe haven until the Dow to Gold ratio gets to the 1-2 range. But if you are interested in Gold stocks, don't lose the forest through the trees. The "big" shake out and correction was in the fall of 2008. It's gone. The new cyclical bull market in Gold stocks is in full force and it will have VERY LITTLE to do with the movements of the general stock market indices like the S&P 500. Risk is high right now for new money in the Gold stock sector only over the short-term, not the longer term. The kind of pending bull market moves remaining in the Gold stock sector are what dollar-cost averaging was made for if one is so inclined.

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