Friday, July 19, 2013
Gold Stocks - All Perspective Has Been Lost
Many recent published commentaries appear to have lost perspective on the now much-hated Gold stock sector. The fact of the matter is that, technically, the secular bull market in Gold stocks has not even been confirmed. I do believe that in retrospect, the late 2000 bottom in Gold stock indices will be "the" bottom, much like the 1974 bottom in the Dow Jones Industrial Average (DJIA) was the true nominal bottom in this common stock index at that time. Here is a long term chart of the DJIA from 1940 thru 1985 (stolen from chartsrus.com) to show you what I mean:
And yet, we already have people pronouncing the secular bull market in Gold over despite the fact that we haven't even had a confirmed secular bull market in Gold stocks yet! Now I realize that mining stocks and physical Gold are not the same thing. Indeed, I have no long-term investments in mining companies and prefer the safety of physical Gold (and silver) held outside the banking system for long-term investment purposes.
However, to say that Gold is (or was, to be respectful to bears with whom I disagree) in a long-term bull market and Gold stocks are (or were) not seems a little bit far fetched to me. As a speculator in the paper markets, I am not even thinking about the end of a secular bull market that hasn't even truly begun yet! Here is a very long-term chart of Gold stocks compiled by Frank Barbera (stolen from a great and classic article) that only extends thru 2005, but gives a true "big picture" perspective:
And here is a chart of Barron's BGMI Index thru the recent nasty downdraft in Gold stocks (stolen from sharelynx.com):
Now, once the secular breakout is confirmed with sustained action (i.e. measured in years, not days or weeks) above around the 1300 level in the BGMI index, then we can start to talk about where the secular bull market in Gold stocks may end. Until then, this is just a major cyclical buying opportunity (a la late 2008) in an early secular trend, nothing more.
In fact the past few years worth of price action in senior Gold stock indices remind me of this:
Even if Barrick goes out of business (who in the Gold community would miss them?), Gold stock indices are headed much, much higher. I think the problem with most commentaries on the Gold sector I have seen lately is that they are too short-term oriented and fail to consider the bigger picture (a sign of the times as money gets "printed" faster and faster by our central banksta wizards). The Gold stock secular bull cycle likely has at least another 10 years to go. And if history is a guide, some of the largest gains in the Gold stocks will occur after the Dow to Gold ratio bottoms. Until the Dow to Gold ratio hits 2 (and a ratio less than 1 seems quite possible this cycle as power shifts from West to East), you can forget the long-term bearish thesis in my opinion.
If you would like some help trading the paper markets with an emphasis on the PM sector, I offer a low cost subscription service for only $15/month.