Hold gold: it’s an insurance policy against global volatility

Gold has proved a wonderful hedge against recent turbulence for British investors, reaching a record peak in sterling terms. Now bulls should be looking at gold mining stocks, says Dominic Frisby.

Gold was one of the go-to investments of the 2000s. From $250 an ounce back in 2001 it rose between 10% and 20% each year, seemingly without fail, until it eventually peaked in September 2011 at $1,920/oz. Mining companies went up ten, 20, in some cases even 100 times. There was a lot of noise and furore. Gold bugs got so excited that they were sure fiat money was going to collapse.
No such thing happened. For the next few years, gold was a disaster. It slid as consistently as it had risen before it eventually bottomed in December 2015 at $1,045/oz. All in all the decline lasted four years and three months, and the overall fall from top to bottom was 45%. That’s better than some commodities, worse than others. Crude oil, for example, went from $147 a barrel in 2008 to an eventual low of $25 in 2016 – a decline of over 80% that lasted twice as long, though there were some strong rallies along the way.
Plumbing the depths
It was the abysmal performance of the miners that made gold’s bear market feel so much worse. Respectable(ish) mining companies producing gold, even at a profit, saw share-price declines of over 90%. Exploration and development companies, even those with decent deposits in safe jurisdictions, saw declines of over 95%. Many went bust. At the spivvy end of the market, the declines were 100% and mere oblivion followed. Gold mining companies did everything that fiat money was supposed to.
While all this was going on, assets as diverse as London property, bitcoin and US stocks were enjoying the mother of all bull markets. Gold investors not only saw colossal losses, but they had the opportunity costs of missing bull markets elsewhere as well. Depressing times. Many veterans in the mining capital markets described the bear market as the worst they’d ever seen. It’s going to take quite something to lure mainstream investors back into gold mining after that.
Today, gold sits at around $1,520/oz. It’s clawed back about 50% of the decline. The mining companies, however, haven’t even clawed back 25%. It doesn’t “feel” like a bull market when the miners are so woefully lagging the metal. It doesn’t “feel” like a bull market when gold is still $400 off its all-time high.

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