The Warrant Report
Gold Stocks versus Broad Stock Market
In this issue:
Gold Stocks Versus Broad Stock Market
“Investors in gold stocks often worry about what will happen to their investments if the broad stock market falls. The worry is that the gold sector will be dragged down by the broad market.
Based on logic and historical data, this worry is generally unfounded. On a long-term basis the gold sector is inversely correlated with the broad stock market in that secular bull markets in gold equities coincide with secular valuation declines in general equities. This is the way it should be, because the demand for gold as an investment and as a store of value ramps up as central banks and governments attempt to fight the conditions associated with declining equity valuations. On a short-term basis there is no consistent relationship between the gold sector and the broad stock market. The two are uncorrelated. Sometimes they trend in the same direction, sometimes they trend in opposite directions.
Over the past two years the gold sector (as represented by the HUI) and the broad stock market (as represented by the SPX) have more often than not trended in opposite directions. The following chart comparison of the HUI and the SPX illustrates this fact. The chart shows that the HUI and the SPX were inversely correlated from late-August of 2011 through to mid-July of 2012 and positively correlated from mid-July of 2012 through to late-November of 2012. Since late-November of 2012 the HUI has had a slight downward bias as the SPX has rallied strongly, meaning that an inverse relationship has again taken hold.
The evidence therefore suggests that there is more chance of the gold sector rising than falling during the broad stock market’s next downward trend.”
Gold Mania Phase Approaching for Juniors
The mystery behind the Bundesbank’s gold
As we rap this up, we have gold hovering at $1690 and silver at $32.
EDUCATION – INVESTMENT IDEAS – PERFORMANCE
Dudley Pierce Baker
Founder and Editor