 Casey Files:
Gold Shares in a Volatile Stock Market
Doug Casey
The International
Speculator
Mar 27 2007
It's no secret that, based
on my analysis of the U.S. economy, I'm a dedicated, even determined,
gold bull just now.
But as much as I like gold,
I like the higher-quality gold shares - especially the Canadian-traded
junior explorers - even more. For the simple reason that history
and the brokerage statements of subscribers to our monthly International
Speculator newsletter attest, when gold runs, the junior
gold shares howl.
Given my strongly held views,
the inevitable pullbacks in gold and gold shares amount to nothing
more than yet another buying opportunity... which, I can assure
you, I take full advantage of.
But for many investors,
especially those new to the sector, the tottering U.S. stock
market and the corresponding swings in gold of late, may give
rise to the question "Just how well will gold shares hold
up in a steep sell-off of broader equity markets?"
David Galland, Managing
Editor of our International
Speculator concisely answers that question below. In addition
to reassuring those of you with an interest in gold, his findings
should serve as an important reminder that the really big returns
will come to those willing to be bold when everyone else is timid...
and, in time, timid when everyone else is bold.
Doug Casey
Gold, like all the major financial
markets, has been on something of a wild ride recently.
While here at Casey Research,
we remain extremely bullish on gold, it is important, even critical,
to keep in mind that bull markets make anyone on the right side
of the trade think they are smarter than they actually are.
Consequently, it is when things
are really going in your favor - as they have these many years
now for anyone early into gold -- that you have to be most on
guard, because pride really does come before the fall. For proof
of that contention, just think of those people you know who were
profitably early into the dot-com bubble but failed to sell when
the selling was good.
So, being on guard, I thought
it worth revisiting the question of how gold stocks perform in
a broader stock market crash.
As you can see from the chart
below, while gold stocks and the broader markets, represented
by the S&P 500, can move together, they can also move in
distinctly different directions.
Look especially at the time
period around the last big stock market meltdown in 2000.
While there were spikes in
the volatility of gold stocks during the period, the general
trend for gold stocks was solidly up... at the same time that
the general trend in broader stock indices was decidedly down.
It is also worth noting that
while the market suffered a solid thwapping (a technical term
meaning a hard slap up the side of the head) during this period,
the thwapping was not related to a monetary crisis, nor even
any particularly dire economic fundamentals, but rather the panicked
unwinding of a speculative bubble in dot-com stocks.
By contrast, the crisis now
closing in on us is all about a monetary meltdown... a set-up
that can only favor gold. Even so, the picture above paints a
pretty clear picture of gold's - and gold stocks' - role in a
market crisis.
Sit tight, and you'll be more
than alright.
David Galland
David Galland
is the managing editor of Doug Casey's International Speculator
newsletter,
now in its 27th year, dedicated to bringing investors unbiased
research on investments with the potential for 100% or better
returns over the coming 12-month period.
To learn more
about the International Speculator and a no-risk
trial subscription offering you the opportunity to view all the
International Speculator's current recommendations, click
here
now.
Doug Casey
Casey Archives
321gold Ltd
|
