Gold Stocks: The Wide Angle View
Below is an excerpt from a recent commentary at www.speculative-investor.com.
Gold stocks, as a group, did poorly in 2011. They did very well during 2009 and 2010, although the strong 2009-2010 performance was partly a reaction to the dismal 2008 performance. If we step back we see that despite experiencing some huge swings, they have essentially gone nowhere since March of 2008. In other words, long-term holders of gold stocks have now spent almost 4 years treading water in rough seas.
If past is prologue, the gold sector's performance over the past few years is encouraging. We say this because if we step even further back we see that the current long-term bull market is continuing to evolve in a similar manner to the long-term bull market that extended from the early-1960s to 1980. In particular, with reference to the following weekly log-scaled chart of the Barrons Gold Mining Index (BGMI) we see that:
Now, we shouldn't blindly assume that the current long-term bull market will continue to track the earlier long-term bull market. Real-time analysis is required at each step along the way, because the current market could end up doing better or worse than the earlier one in response to contemporary fundamental developments. We are simply trying to show that the frustration being experienced by today's holders of gold stocks was most likely also experienced by holders of gold stocks at a similar stage of the 60s-70s bull market. In fact, the level of frustration could have been higher back then because this time around the BGMI was quicker to recoup the losses incurred during its first major correction.
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