By Kevin Brekke, Casey Research
If you own any, it might seem that gold stocks have been underwater for a long time, and that the bull market is over.
Yet, the chart below tells me that likely as not, those with the courage to buy when others panic will be the big winners in gold.
It shows that those who bought gold stocks in '74-'75 when everyone else was buying eventually made money…. but those who bought when others were selling in '76 went on to make a killing.
So recently, while veteran gold investors are little concerned and see the markdowns as a buying opportunity, it's raised the ire of more than a few newer investors.
The extent and duration of the selloff in gold equities has spurred much speculation about the health of the trend, summed up neatly as, "Does it mean the bull market is over?"
Hardly. And for one fundamental reason that we at Casey Research – especially Jeff Clark in BIG GOLD – have stated more than once:
The drivers for gold are far from over, which will eventually propel stock prices higher.
History shows that lagging equities during a gold bull market are par for the course.
The chart below, comparing the current gold equities downturn with the one experienced during the middle of the last great gold bull market of the '70s, shows a similarity;
From April 1973 through July 1976, gold stocks as a group initially tripled in value – and then gave it all back.
You can see that the latest retracement is very similar in nature, though the initial climb was smaller and the downfall shorter.
It goes without saying that sentiment for gold stocks during the two-year selloff that commenced in 1974 was abysmal. Worry grew as stocks got cheaper and cheaper – and then cheaper still.
Even though the gold price was also falling, cries that the bull market in gold stocks was over grew. It seemed there was no money to be made in gold stocks.
Sound familiar?
Ultimately, the selloff did not end the trend. Gold resumed its climb in early 1976, and gold stocks mimicked the ascent.
Then, in 1979, the mania started for both precious metals and the equities, culminating in the blow-off top of January 1980.
In retrospect, that 40-month retracement was one big fake-out.
My personal takeaway from this chart: those with the mettle to buy when others take flight will be the big winners this time, too.
As in any investment, knowledge is key. Sure, the buyers in '74-'75 made money eventually. But those who bought when others were selling in '76 did far better.
There is no sure thing in any market, very few of us gold bulls predicted the year long cyclical bear market, so that further enforces the idea of not knowing what 5-10 years holds as well. There are far too many variables, far too many twists the bankers can throw, collapses and no collapses to boot. Enjoy the ride, but know it can and does as history proves, turn bad. That's why we use mental stops to protect hard fought gains.
You chose the duration of 40 months, rather than matching the peaks and subsequent selloff.
While I believe i. Gold as well, what id you match the peaks? Then we have another year of downside movement to kill any Gold bull, at which point the reversal then kicks in.
Too bearish?
gold is like fire insurance we must have it but hope we never need it because we will lose everything else
the americans usually kill anyone who rises above the unwashedd masses.ihope this haabit does not continue
gold stocks will eventually outperform gold %-wise in the next 6 years.
print...print....print is all they can do now.......... in this 40 years in the making debt corner we have painted ourselves in.
cut the budget?.....thats pretty funny........
Gold and silver going much higher !
I think that when silver breaks $31.00 it will go to $40.00 then to $100.00 probably by 1st quarter of 2013. Then I think it will go to + $200.00. Gold will hit $1,800-$2,000 by year end. We will see $5,000 gold in late 2013 or sometime in 2014. The stock market will lose 50-65% by year end or early 2013.
The dollar shall drop significantly and we will have hyper-inflation. We will soon see gas prices at $10.00/gallon, bread at $12-$15/ loaf. God Bless you all and may GOD BLESS AMERICA!!!!
GCK
i agree, George, might take just alittle longer than that but not much.
Nice script George, you thought of working for Hollywood? In the markets, you are never sure if the actors are going to follow a perfect script! This is a secular bull market in metals, meaning it's wise to be long. If all markets drop 50% a la 2008 as your script says however, don't expect to not see everything taken down simultaneously. History has shown that over and over again.
Brekke, In Minnesota there were Brekke's in my town. Warm regards if you are from there .