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Gold Stocks – Why Now?

Commodities / Gold and Silver 2015 Oct 14, 2015 - 12:00 PM GMT

By: Willem_Weytjens


I have become more and more positive towards Gold STOCKS since the summer.

As my readers know, I went on a gold mining shopping spree on August 6th 2015, when I wrote:

As I wrote 3 days ago, Gold miners have been punished really hard. Maybe a bit too hard.
Therefore I went on a gold mining shopping spree today when the markets opened.

It’s always hard to spot an exact bottom, but in hindsight, this is as close as one can get:

Over the last few months, some of my readers have asked me the following questions:

“Won’t Gold stocks crash if/when the Dow Jones/SP500 tank?” And “If Gold drops more, won’t the Gold stocks drop to new lows?”

Well, that would seem to be the most logical answer, yes. But, sometimes, the markets can do weird things. In my opinion, Gold Stocks have been punished so badly, that even if Gold would remain flat (or even go down), it would still be possible for Gold stocks to ignore the metal price, and actually rise instead.

This is exactly what happened in 2000-2001. Have a look at the following chart:

What do we see?

  • The HUI index bottomed in November 2000 at 35.31
  • Gold bottomed in February/April 2001 at $256.
  • The SP500 index dropped sharply going into September 2001.

What’s so spectacular here?

The HUI index bottomed 3 to 5 months prior to Gold (shown by the Red and Blue lines in the chart below). In fact, at the time Gold bottomed, the HUI index was actually trading around 47, up about 33% from its lows!

Moreover, when the markes crashed on 9/11, the HUI index was trading at 75, up a staggering 112% from its lows!

So I don’t (just) look at the metal price or the general markets when I decide to buy (gold) stocks. They can go up or down, and I don’t know what the future brings. What I do know, is that Gold Stocks have never been cheaper compared to Gold than they were in early August, when I decided to buy.

Even after the recent upturn, they are still nearly as cheap as they have ever been.

Willem Weytjens

© 2015 Copyright Willem Weytjens - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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