Market Structure Challenged: GDX Collapses In Unexpected Gold Decline

Summary

• Precious metals and precious metals stocks are often thought of as a safe haven.
• However, in times of true market panic, they get sold off too.
• This was true in the heart of the decline in the 2008 market sell-off.
• Unfortunately for gold bulls, it was true last week too.
• Once the panic subsides, precious metals equities should bounce back earlier than the broader market, following the 2008/2009 example.
• This idea was discussed in more depth with members of my private investing community, The Contrarian. Get started today »

I will go to my grave... believing that really loose monetary policy greatly contributed to the Financial Crisis. There were obviously problems with regulation, but when we had a 1% Fed Funds rate in 2003 after, to me, it was pretty obvious that the economy had turned (up) and I think the economy was growing at 7% to 9% nominal in the fourth quarter of 2003 and that wasn't enough for the Fed. They had this little thing called "considerable period" on top of the 1% rate just so we would make sure that their meaning was clear. And it was all wrapped around this concept of an insurance cut… I've made some money predicting boom-bust cycles. It's what I do. Sometimes I am right. Sometimes I am wrong, but every bust I had ever seen was proceeded by an asset bubble generally set up by too loose policy..."

- Stanley Druckenmiller

"Try to buy assets at a discount rather than earnings. Earnings can change dramatically in a short time. Usually, assets change slowly. One has to know how much more about a company if one buys earnings."

- Walter Schloss

"A 60:40 allocation to passive long-only equities and bonds has been a great proposition for the last 35 years… We are profoundly worried that this could be a risky allocation over the next 10."

- Sanford C. Bernstein & Company Analysts (January 2017)

"Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria."

- Sir John Templeton

"Life and investing are long ballgames."

- Julian Robertson

(Source: Author's Photo)

Introduction

I have been writing about the flawed current structure of the stock market for some time, highlighting how crowded trades were poised to unwind with a series of public articles, including these selected entries:

Be Prepared For

Analyst’s Disclosure:I am/we are long GDX, EQT, FNV, GOLD, AND SHORT SPY AND TLT IN A LONG/SHORT PORTFOLIO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Every investor's situation is different. Positions can change at any time without warning. Please do your own due diligence and consult with your financial advisor, if you have one, before making any investment decisions. The author is not acting in an investment adviser capacity. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC filings. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.