Wednesday, November 18, 2009
Unabashed Gold Stock Bull
Gold stocks have outperformed Gold since the crash lows of the Great Panic of 2008. Some have been disappointed with the performance of Gold stocks. I think they have done extremely well and welcome the additional time to accumulate more shares before Gold stock indices blast to new all-time highs. I think Gold stocks are on the verge of a big move higher, regardless of what the stock market does. Here is a ratio chart of the Gold Bugs Mining Index ($HUI) divided by the Gold price ($GOLD) using a 10 year log scale candlestick chart:
Do I think the stock market is about to top out and go lower? Yes. Do I think Gold stocks will follow the market down? No. Have the Gold stocks ever managed to escape stock market carnage before? Many, many times! Everyone remembers 2008 and thinks that is what happens to Gold stocks when the stock market dives. Does everyone forget the 2000-2003 general stock bear market? Gold stocks initially fell with the stock market in late 2000, then COMPLETELY DECOUPLED from the stock market for 2 years and raced higher for MASSIVE gains while the stock market tanked.
And the inflationistas out there ought to be familiar with the 1970s stock bear market and Gold and Gold stock bull market. The absolute worst cyclical bear market of the 1966-1980 secular stock bear market? Hands down it was the 1973-1975 bear, which caused a 50% drop in the major general stock market indices. Take a look at this nasty bear, in all its glory (chart stolen from sharelynx's historical charts of interest page, a great site every market historian should have bookmarked):
And here's what happened to Gold stocks during this time using the Barron's Gold Mining Index (next chart also stolen from sharelynx.com):
And, finally, the Gold price during this time (again, massive theft with props to sharelynx):
It is true that during a true stock market panic, everything is sold. But we have already had the panic part. We still have one or more nasty additional stock market bear legs down to go. But stock bear markets do not define the Gold bull market and never have other than in a very general sense (i.e. secular stock bear markets are when secular Gold stock bull markets occur). We are due for a short-term correction in Gold soon, which will affect Gold mining shares. But I believe we are on the cusp of a major Gold stock blast-off higher once this anticipated short-term correction occurs.
It is not the time for fear, it is the time for accumulation of Gold shares that have undergone significant corrections. I have pointed out many over the last few weeks and others will likely start corrections soon. The first half of 2010 should be VERY exciting in the Gold mining sector in my opinion. And remember, this leg up in the Gold price is the first short-term leg up for this intermediate term bull move, not the last. After a healthy and necessary correction that should last 2-8 weeks begins, we are then due for another leg higher in the Gold price that should be equal to or stronger than the initial leg up! This second leg up will cause Gold mining shares to explode higher, regardless of what the general stock market does.
We are now in the pre-mania phase of the secular Gold bull market, where widespread private institutional money, public institutional money and central banks have entered the fray and are increasingly going to do so. Gold is no longer a secret, but the public is not in this thing yet. Things are getting ripe for an upside explosion in Gold shares. This will further prime the pump for the mania phase, the final phase of the secular bull that has not yet begun. Short-term froth is a VERY different animal compared to a long-term secular top. The Indian government is the quintessential definition of "smart money" when it comes to the Gold market and they think Gold is a good deal at over $1000/ounce. Those screaming "bubble" in the Gold market (the same folks who doubted, shorted, ridiculed and/or ignored the Gold bull market up to this point) ain't seen nuthin' yet.