Palisade Research - Tue, Sep 19, 2017

Gold Stocks To Explode When The S&P Implodes

picture of golden bull and bear figurines on top off some paper money

When the S&P inevitably corrects or crashes, what will happen to gold stocks? With 2008 in close memory, most gold investors foresee a stock market crash that will also drag down the gold stocks.

line chart shows the performance of gold stocks during S&P 500 bull and bear markets from 1970 to present

The above chart dispels such a theory. In fact, the number one determining factor as to whether a stock market crash will take the gold stocks up or down, is the performance of the gold stocks in the years leading up to the market crash.

It is actually the performance of gold stocks during a bull market that dictates the performance of gold stocks during a bear.

table shows gold stock performance versus the S&P 500 in both bull and bear markets

When gold stocks remain stagnant or drop during an S&P bull market, it has always performed positively in the subsequent bear. However, if gold stocks rose with the bull, it will drop as well during the bear.

The May 1970 to January 1973 bull market saw the S&P 500 gain 65% while gold stocks only returned 11%. The bear market was triggered by overwhelming public debt and inflation, and exaggerated by OPEC's oil embargo. The S&P dropped -48% while gold stocks gained 180%.

The next time gold stocks dropped during a bull market was December 1987 to March 2000, where the S&P 500 gained 568%, while gold stocks lost -60%. The following bear market was the devastating dot-com bubble, where the S&P dropped -49%, but also triggered a fantastic gold rally. During the bear, the BGMI returned 28%, which continued into the next bull market, gaining 343% over the two cycles.

In the current bull market, the S&P is up 247%, while gold stocks are down -30%. If the pattern holds, the succeeding bear market in the S&P will trigger a major gold rally, which we predict will continue into the next S&P bull. publishes interesting contributor articles in addition to its own content. We have not verified any of the above details.

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