Jeff Clark: Are Gold Stocks Still Going to Bring the Anticipated Magic? Yes, Here’s Why (+2K Views)

We’re invested in gold stocks not just to make money, but for the chance to change our lifestyles and with their lackadaisical [dare I say dismal] year-to-date performance, one may begin to wonder if they’re still going to bring the magic. [Here are my views on the subject.] Words: 740

So says Jeff Clark (www.caseyresearch.com)  in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com has further edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.

Clark goes on to say, in part:

While the answer will depend as much on the individual investor as it does the market, let’s look at some historical patterns to get a hint as to how similar or different our situation is to past bull markets, as well as what realistic expectations we can hold about the future…

1. Gold stocks underperformed gold for two years prior to the 1979-‘80 mania:

Today, gold is up approx. [6.2%] year-to-date (through [March 22]), while gold stocks (GDX) have [fallen]… 3.2%. This is a pattern [that is more or less similar] to the pre-mania behavior of the last bull market; it tells us that the current relationship between gold and the equities is not abnormal…

Here’s a chart of gold and gold stocks in 1979 and 1980:

(Click to enlarge)

2. Once the mania began, gold producers returned roughly four times the money:

• From January 1, 1979 through their peak in October, 1980, gold stocks rose 293.6%.
• The metal gained 274.8% during its part of the mania, hitting its pinnacle of $850 on January 21, 1980.
• The big action was with the juniors and explorers; the average return of 15 companies we sampled was 2,313% during this 22-month period. What’s ahead could be truly spectacular.

3. Gold stocks peaked nine months after gold:

• The April Fool’s joke in 1980 was on those who thought the bull market was over at that point. What’s important to realize is that the public’s biggest shift from gold to the equities occurred after gold’s blow-off top.

Regardless of the extent to which the public may be buying gold today, it’s clear gold stocks aren’t on their radar screens. If history is any guide, they will be.

4. Gold stocks did well in spite of the world being a tumultuous place:

• Inflation was over 12% in 1980 and interest rates hit 13.5%.
• Two recessions occurred in the late ‘70s and early ‘80s.
• An oil crisis hit in 1979, and
• Iraq invaded Iran.

In the midst of all this, gold stocks soared.

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With our debt and currency concerns demonstrably worse now, one could easily argue that our present environment is even more supportive of the gold industry.

5. Gold stocks exploded even though the S&P was subdued:

• The S&P rose 36.8% in the same time frame (1-1-79 through 10-20-80) … Not too shabby – but gold stocks outpaced it almost eightfold…

I think there’s one last lesson from these data.

6. Make sure you invest in gold and not just gold stocks:

• Not only is your risk decidedly higher if you invest solely in equities, you lack an alternate form of money that has been used repeatedly throughout history. You’d hate to be part of the mania only to see one or more of your stocks plummet from a political issue or flatline because of a management problem. Gold, meanwhile, will be serving its unfaltering role as money – what I use for a large chunk of my savings. Don’t make the mistake of thinking you don’t need gold just because you own gold stocks.

Conclusion

So, will gold stocks bring us riches? History doesn’t repeat in exact terms, but it usually rhymes – and given our similarities to the last great bull market, I think we’re in the right place.

*http://www.caseyresearch.com/articles/how-long-might-it-take-get-rich-gold-stocks

Editor’s Note: The above article has been has edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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