Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The last time the S&P 500, Dow Jones Industrial Average (DJIA), and NASDAQ closed simultaneously at record highs, each index tumbled for the next 2.5 years: -40.33%, 25.04%, and -75.04%, respectively. Now after the 2008-2009 Financial Crisis, each indexed has recovered and then some, and poised once again to correct in a big way. In fact, if the market were to correct in a similar way as we saw in 2002 and 2009, we can expect the S&P 500, DJIA, and NASDAQ to drop -64.65%, -60.72%, -75.80%, respectively.
During the 2000-2002 market drop, there was a negative correlation between the S&P 500, DJIA, and NASDAQ with the HUI, meaning when the indices dropped, the HUI or gold stocks increased. As seen in the above chart, there has been an extreme divergence between the performance of US Indices and gold stocks. While the HUI has recently closed the gap in a big way, it is apparent there is still a long ways to go.
The top of the S&P 500, DJIA, and NASDAQ is nearing and the HUI is poised to increase even further as investors begin taking money out of equities to invest in ‘safer’ investments. Although volatility still remains low, economists and investors alike agree that markets are simply drifting upwards and with no true grasp on fundamentals. This means when the markets do turn, it will happen quickly and in a big way, only exaggerating the recent rebound in gold price and gold stocks.
Where will your money be when the inevitable crash occurs?
