…The gold-mining sector performs very well during the first 18-24 months of a general equity bear market as long as the average gold-mining stock is not ‘overbought’ and over-valued at the beginning of the bear market according to the historical record.
By Steve Saville (speculative-investor.com/tsi-blog.com). Originally posted* on Gold-Eagle.com under the title Gold Stocks During An Equity Bear Market.
[While the comments made in the introduction above are true the sample size mentioned unfortunately consists of] only two relevant cases.
1. The general equity bear market that began in January of 1973 and continued until late-1974. This bear market resulted in peak-to-trough losses of around 50% for the senior U..S stock indices.
The following chart comparison of the Barrons Gold Mining Index (BGMI) and the S&P500 Index shows that the gold-mining sector commenced a strong upward trend near the start of the general equity bear market. During the bear market’s first 20 months, the BGMI gained about 300%.
2. The general equity bear market that began in September of 2000 and continued until early-2003. This bear market also resulted in peak-to-trough losses of around 50% for the senior U.S. stock indices.
The following chart comparison of the HUI and the NYSE Composite Index (NYA) shows that the gold-mining sector commenced a strong upward trend about 2.5 months after the start of the general equity bear market. Despite the fact that the HUI suffered a substantial percentage decline during this 2.5-month period, it still managed to gain about 200% over the course of the bear market’s first 20 months.
…The gold-mining sector:
performs very well during the first 18-24 months of a general equity bear market, as long as the average gold-mining stock is not ‘overbought’ and over-valued at the beginning of the bear market, and
[performs poorly during]…those times when the gold-mining sector has trended upward with the broad stock market during the 6-12 months prior to the start of the general equity bear market. Consequently, in the unlikely event that the current bull market in U.S. equities continues for another 6-12 months and gold-mining stocks [also] trend upward during that period, the gold-mining sector will then be vulnerable to the downward pull of a general equity decline.
Conclusion[Given the fact that] the gold-mining sector is currently a long way from being ‘overbought’ and over-valued (by some measures it was recently as ‘oversold’ as it ever gets) the historical cases cited above would therefore be relevant if a general equity bear market were to begin in the near future.
[The above article is presented by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com, www.munKNEE.comand the FREEMarket Intelligence Report newsletter (sample here – register here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. This paragraph must be included in any article re-posting to avoid copyright infringement.]
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