Buy Gold… And Hold Your Nerve

01.09.2016 • Gold and Natural Resources

From Merryn Somerset Webb – MoneyWeek (Great Britain) –

If there is a more volatile asset class than gold mining, I’d like to know what it is. It’s feast or famine. If you bought a sensible, large-cap gold mining company in late 2000 or early 2001, then by 2003 you would have sextupled your money. Yes, you read that right. Your investment went up more than sixfold. But you needed to time it right. New investors who joined the party in 2004 found themselves down 35% within 18 months. Then, between 2005 and early 2008, you could have tripled your money. But within the year you were down 70% – gold miners were back at 2002 levels. Then, from late 2008 to 2011, they more than quadrupled. But from 2011 to the start of this year they fell by 85% – back to 2002 levels again.

What came next? True to form, 2016 has been an absolute belter. From low to high, the NYSE index of gold stocks (the HUI) has gone from $100 to $280 – almost tripling. To the best of my knowledge, gold stocks have beaten every other asset class this year, while gold itself has been among the best-performing currencies (if you don’t mind my calling it that), up some 25%-30% against the US dollar, and much more in sterling terms – gold has been a great hedge against post-Brexit currency disorder. Phew! It’s been some ride. However, since early to mid-August, gold and gold stocks have enjoyed what we might call “a healthy correction”. Mining share prices have fallen by 15%-20%. The question I and just about everyone else who dabbles in the sector is asking is: “Is this the start of something more serious, or is it just a natural, necessary pullback in a bull market?”

 

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