What Will Happen to Mining Stocks in the Next Stock Market Crash?

Jerry, first I would like to say THANKS!!! for all you and Jennifer do. It has been very helpful for myself and my family. Please excuse me if my question is too simple as I am new to the financial world. I would like to know your opinion on something. If we have a sizable drop in the stock market, but not a total crash, which I believe is very likely, and if gold/silver respond in a very bullish way as money runs from the market to precious metals, what will happen to gold and silver mining stocks? Would they still continue to prosper as precious metals prices rise or would they be guilty by association and fall with the general stock market? I know its a great time to hold physical gold and silver, but if I have mining stocks should I bail out just because it is “Paper”? I know there are a lot of “if’s”, but I am interested in your opinion.

Thanks for your time! Look Up For Your Redemption Draws Nigh!
Mike

– Mike (Stillwater, OK)

Mike, you have asked a great question. The answer, of course, is elusive and the only meaningful way to answer such a question is to examine how mining stocks have behaved during previous downturns. Below is a chart of both the S&P 500 index and the NYSE Arca Gold BUGS Index (“HUI Index”) going back to mid-1997. The phrase “BUGS” means “Basket of Unhedged Gold Stocks,” which is exactly what the “HUI Index” represents, namely, gold mining.

Notice that from mid-1997 to 2003 the price of gold mining stocks fell steadily. This occurred despite a massive bull run in U.S. stocks during the same period, which ultimately ended with the “dot-com” implosion.

However, no stock sector was spared from the 2008 stock market crash, including the mining sector. This is not to say that mining stocks could not buck the trend during another major downturn in U.S. stocks. However, I wouldn’t bet my retirement money on it. Mining stocks are highly speculative and should compose only a small portion of any stock portfolio.

Regarding mining stocks themselves, consider the below chart…

In late 2000, mining stocks bottomed out. But from 2000-2010, the HUI Index was the top performing sector in the U.S. stock market! Many speculative investors became increasingly bullish on mining stocks after it just recently found support near its 2008 lows. So, are mining stocks getting ready to skyrocket? Perhaps. Just for kicks, I have run my favorite gold mining ETF (Market Vectors Gold Miners ETF – GDX) through our Trigger Trading system. While our Trigger Trade system is primarily used to identify short-term buy signals, it can easily be adjusted to uncover long-term buy signals as well. And when it comes to gold mining, I prefer to make long-term trades as the bull runs in this sector can be quite significant.)

So, here’s what I got after running GDX through our trading system…

As you can see, GDX has hit the “TRIPWIRE” and is just now preparing to “TRIGGER.” However, both of our “CONFIRMATIONS” continue to show that this TRIGGER will be invalid. So, I will not be re-establishing my long-term position in GDX until these two confirmation indicators “confirm” that the buy signal is valid. When this occurs, I will alert our FTM Insiders in real-time.

Finally, regarding physical gold… You are correct that now is a great time to buy and hold gold. As the world economy plods along, global central bank policy has become increasingly disarticulated. Those who buy and hold physical precious metals are, in essence, placing a major bet against the professed sanity of lawmakers, central bankers, and other leaders in the world of high finance. They are also protecting themselves from the continuing erosion of their currency’s purchasing power.

Interestingly, our Trigger Trade system is nearing the biggest long-term BUY signal on physical gold in years. But I will save that discussion for tomorrow’s post.

Thanks for the question Mike. I hope this helps.

Until tomorrow,
Jerry Robinson

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