Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19
Is the Stock Market Making a V-shaped Recovery? - 11th Aug 19
Precious Metals and Stocks VIX Are About To Pull A “Crazy Ivan” - 11th Aug 19
Social Media Civil War - 11th Aug 19
Gold and the Bond Yield Continuum - 11th Aug 19
Traders: Which Markets Should You Trade? - 11th Aug 19
US Corporate Debt Is at Risk of a Flash Crash - 10th Aug 19
EURODOLLAR futures above 2016 highs: FED to cut over 100 bps quickly - 10th Aug 19
Market’s flight-to-safety: Should You Buy Stocks Now? - 10th Aug 19
The Cold, Hard Math Tells Netflix Stock Could Crash 70% - 10th Aug 19
Our Custom Index Charts Suggest Stock Markets Are In For A Wild Ride - 9th Aug 19
Bitcoin Price Triggers Ahead - 9th Aug 19
Walmart Is Coming for Amazon - 9th Aug 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Will a Stocks Bear Market Hurt Gold Stocks?

Commodities / Gold & Silver Stocks Jul 31, 2012 - 04:13 AM GMT

By: Jordan_Roy_Byrne

Commodities

Best Financial Markets Analysis ArticleThe relationship between gold stocks (while in a secular bull market) and the broad market (while in a secular bear market) is difficult to diagnose and that is what makes it so interesting. There is no single rule of thumb or axiom we can trust because history is quite varied. There are instances of the gold stocks crashing with the stock market, rising with the stock market and rising substantially while the stock market endures a nasty bear market. Currently, the gold stocks are moving into the latter stages of their third secular bull market in the last 90 years. Yet, the equity market could be at risk of soon entering a cyclical bear market. In this article, we review some history between the gold stocks and the equity market before drawing conclusions relevant to the near future.


First, we look at the 1970-1974 period. The Barron's Gold Mining index is in red with the S&P 500 in blue. The BMGI essentially went sideways from 1970 until late 1972. In the same period, the S&P 500 enjoyed a very strong rally of nearly 100%. Leading up to the market peak, the S&P continued to rise while the BGMI declined nearly 30%. However, the BGMI would experience a spectacular rise at the time of the recession while the market was cut in half.

Barron's Gold Mining index vs S&P 500 - 1970-1974

Next we focus on the period 1976 to 1980. The BGMI declined from 1974 to 1976 as the S&P rebounded substantially. Then the BGMI bottomed nearly in lockstep with the S&P beginning a mild cyclical bear market. The BGMI performed well in 1977 but didn't begin an accelerated ascent until the cyclical bear market in stocks ended.

BGMI vs S&P - 1976 t 1980

Next we review the 2000 to 2003 period. The HUI was cut in half prior to the onset of the 2000-2001 recession. The S&P of course, trended higher into 2000. After the onset of the recession, the two markets flipped. The gold stocks performed very well and the recession and bear market had no impact on the gold stocks.

$HUI (Gold Bugs Index - AMEX) INDX

The 2007-2008 example is the most unique. The gold stocks were lagging into the stock market peak and recession but were not oversold as in 1972, 1976 or now. After the market peaked, the gold stocks continued higher for five months before crashing. However, the gold stocks would bottom five months before the S&P 500. Interestingly, this is most similar to what happened during the Great Depression. Both markets trended higher into the crash (1929) and then suffered during and soon after the crash. Yet, the Financial Times gold stock index bottomed in 1931, a full year before the overall market.

$HUI (Gold Bugs Index - AMEX) INDX

What can history tell us going forward? The key is the correlation. If gold stocks are trending higher with the equity market into a potential recession and bear market, then the gold stocks would remain positively correlated over the intermediate term. However, we can see that if the gold stocks are in a cyclical bear while the broad market is nearing a trend reversal or while the economy is nearing recession, then the gold stocks will remain negatively correlated. This is evident in three of the four previous examples.

The current market conditions are similar to those of 1972, 1976, and 2000. The S&P 500 is up 26% in the past nine months while the HUI is down 36% in the last 10 months. Judging from history, this negative correlation bodes well for the gold stocks should the equity market enter a bear market and the economy enters a recession. However, if the S&P 500 continues higher from here, the gold stocks would struggle. Conventional wisdom would immediately refer to the 2008 experience and dismiss the notion that the gold stocks could decouple. However, the current evidence strongly favors the decoupling scenario.

It is also very important to assess the correlations with bonds and the US dollar. Peaks in bonds usually support precious metals but there have been times when both have trended higher (2001-2003, 2007, 2010). Strength in the US dollar will almost always put some pressure on precious metals. Currently, we have a situation in which equities, bonds and the US dollar are all correlated. Should bonds and equities begin a cyclical bear market, Gold and gold stocks (currently negatively correlated) will benefit. Moreover, odds are excellent that precious metals have bottomed and begun a new cyclical bull market. Investors who buy and accumulate shares at these levels will profit handsomely over the next year and several years. In our premium service we focus on the producers and explorers best positioned for and most likely to take advantage of the next leg up in this bull market in precious metals

If you'd be interested in professional guidance in this endeavor, then we invite you to learn more about our service.

Good Luck!

Email: Jordan@TheDailyGold.com
Service Link: http://thedailygold.com/premium

Bio: Jordan Roy-Byrne, CMT  is a Chartered Market Technician, a member of the Market Technicians Association and from 2010-2011 an official contributor to the CME Group, the largest futures exchange in the world. He is the publisher and editor of TheDailyGold Premium, a publication which emphaszies market timing and stock selection for the sophisticated investor.  Jordan's work has been featured in CNBC, Barrons, Financial Times Alphaville, and his editorials are regularly published in 321gold, Gold-Eagle, FinancialSense, GoldSeek, Kitco and Yahoo Finance. He is quoted regularly in Barrons. Jordan was a speaker at PDAC 2012, the largest mining conference in the world.

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules