Gold, and to a greater degree gold stocks, typically decline whenever there is a general stock market decline. We have examined the price of gold and the fluctuations of gold stocks as far back as possible. From our experience there have been few instances when gold, and especially gold stocks, have parted ways when the overall market declined.
The following are our Seeking Alpha articles on gold and gold stocks:
"Why Gold Will Decline More than the Markets" (found here: http://seekingalpha.com/article/106544-why-gold-will-decline-more-than-the-markets) from Nov 18, 2008. In this article, we cite the work of David Marantette, author of the Goldstock Letter, who argued that when the Dow declines -10% or more gold and gold stocks are likely to decline by a greater percentage. The data covers the period from 1975-2007.
"Gold - Not the Safe Haven People Think it Is" (found here: http://seekingalpha.com/article/109880-gold-not-the-safe-haven-people-think-it-is) from Dec 9, 2008. Due to the outrage at the first article, and claims that gold did well in the "great" Depression, we examine the performance of gold stocks from 1924 to 1933. We included the high and low prices from Poor's (predecessor to Standard and Poor's) of gold stocks from 1924 to 1933 to show that gold stocks got hammered at the same time that the Dow Jones Industrial Average got crushed. In fact, the decline in gold stocks began in 1925 rather than 1929 for general equities and ended at the same time in 1932.
"The Lessons of Homestake Mining in Gold Bull and Bear Markets" (found here: http://seekingalpha.com/article/234105-the-lessons-of-homestake-mining-in-gold-bull-and-bear-markets) from Nov 2, 2010. The gold stock from which all other gold stocks myth springs from, we examine exactly why Homestake [HM] was unique as a gold major in its ability to succeed where other gold stocks haven't. We point out government and internal policies that helped [HM] be the exception rather that the rule. Unfortunately, those who wish to propagate "stories" about gold stocks doing well in the "great" Depression usually hoist [HM] as the token gold stock.
There is one period that gold stocks did act as non-correlating asset and that was the period from 1972 to 1974. While the Dow Industrials were going down by -40% gold stocks made a massive move up as represented by the Barron's Gold Mining Index. We believe this was due to the recent actions by the Nixon administration closing the window on gold thereby allowing gold to find its equilibrium, subsequently gold stocks followed along. Unfortunately, from 1974-1976, gold declined -50% and gold stocks got crushed to the tune of -66%.
We hazard to bring up the 6 month period from March 2008 to October 2008 when gold sank -30% and gold stocks declined -68%, since those in denial, and not knowing history,claim that it was an anomaly.
Our article titled "A Strategy is Needed For Lagging Gold Stocks" (found here: http://seekingalpha.com/article/304922-a-strategy-is-needed-for-lagging-gold-stocks) introduces our Gold Stock Indicator specifically designed to address the very question that you have, determining when is the most ideal time to buy and sell gold stocks.
Our Gold Stock Indicator provided the following buy recommendation of DUST on February 8, 2012 (found here: http://seekingalpha.com/instablog/242682-new-low-observer/293271-gold-stock-indicator-points-down). Subsequently, DUST increased +54% by the time we recommended selling DUST and recommended preparing for a buy indication of NUGT on April 4, 2012 (found here: http://seekingalpha.com/instablog/242682-new-low-observer/474131-gold-stock-indicator-nearing-a-buy-signal-for-nugt).
The purpose of our Gold Stock Indicator is to circumvent the common misconceptions of holding and hoping when it comes to gold stocks, at the same time avoid periods of substantial decline in gold stocks like that of November 2010 to the present.
As we've said many times before, gold stocks can be easily gutted IN THE MIDDLE OF A GOLD BULL MARKET as outlined in our previous work.
- In the following link accessible to subscribers of our site, we outline our specific plan of action based on our Gold Stock Indicator. Continue reading...