Despite the considerable rally in gold the shares of the companies mining the yellow metal were sold off with the rest of the equities market. The question for investors is: Will the gold stocks now start to act like gold stocks and play catch-up with the metal or will they continue down with the broad stock market?
Sometimes they’re just stocks
Between 21 July and 9 August the price of gold rose 12% however over that same period the HUI (a basket of 15 unhedged major gold mining companies) fell 12.7%. This is because sometimes the market treats these companies as gold stocks and at other times it treats them just like any other stock.
In this instance the world’s top gold companies were treated just like other stocks and sold off accordingly. Over the same 20 day period the DOW fell 16.8% and the FTSE 100 fell more than 19%.
A buying opportunity?
As my subscribers know I have been preparing for this selloff for some time and as a value investor I always like to see the companies on my shopping list get considerably cheaper, especially when I have a good amount of cash to deploy when the time is right.
The question for investors is: Will the gold stocks now start to act like gold stocks and play catch-up with the metal or will they continue down with the broad stock market?
My guess is that they will continue to act like stocks for a while yet and barring massive fiscal stimulus from the Fed (which is definitely coming but probably not quite yet) I believe this stock market correction has further to go. I am therefore keeping my power dry.
To find out what stocks are on my shopping list and how my Model Portfolio made 33.7% in the past 12 months, visit www.mountaininvestor.com