By Jeff Clark, Casey Research
Let’s just admit it: we’re invested in gold stocks not just to make money, but for the chance to change our lifestyles. And with their lackadaisical year-to-date performance, one may begin to wonder if they’re still going to bring the magic.
While the answer will depend as much on the individual investor as it does the market, let’s look at some historical patterns to get a hint as to how similar or different our situation is to past bull markets, as well as what realistic expectations we can hold about the future.
The first thing I wanted to know is if there is historical precedence for gold stocks to underperform gold during a bull market. If so, then maybe what we’re experiencing isn’t out of the ordinary, and more importantly, wouldn’t necessarily mean they are destined to continue lagging. And that brings us to our first historical observation…
Gold stocks underperformed gold for two years prior to the 1979-‘80 mania. What many frustrated investors don’t realize is that leading up to the blow-off top in gold in 1980, gold producers lagged the metal for two full years. From January 1977 through the end of 1978, gold rose 58.4%. But gold stocks, as measured by Barron’s Gold Mining Index, were up only 11.7%. The metal outperformed the producers by a margin of four to one, despite it being the middle of a bull market.