80 Years History of Brutal Gold Stock Corrections

By: Boris Sobolev | Mon, Oct 27, 2008
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The severity and the speed of the crash which occurred in the precious metals stocks caught us and practically everyone by complete surprise. The meltdown surpassed everybody's expectations and has no historical precedents.

However, when looking at the past 80-year history, there are a number of bear markets that carry some similar characteristics to the crash of 2008. The following six bear markets saw very significant corrections in mining stocks:

In the past year, the ultimate high for $XAU was 209.28 set on March 14 on the Bear Stearns developments. In July, $XAU made a double top, hitting 206.21. From this level to a low set on Friday of 63.52, the total decline is now 69.2% in just three months.

While a couple of major bear markets showed slightly greater losses than what we have today, the decline in the 2008 bear market occurred in the shortest span of time ever, making it into a crash of largest proportions and without any precedents over the past 80 years.

For the past few weeks, it has felt as if the bear market in precious metal stocks cannot get any worse. But it has gotten worse, worse and much worse. It has been as if the precious metals mining and exploration companies are all going out of business imminently.

Yes, it would be foolish to say that it cannot get worse from here. But both math and history are on our side. It is now very probable that a sharp multi-week rebound of at least 50% to 100% is near. The bigger question is how long will it take the $XAU and the juniors to climb back to its 2007/2008 highs. The $XAU would have to rise by 220%, while many juniors would have to rise 500%, 1000% or more.

From the above historical observations we can conclude that major gold indices such as the $XAU, $HUI, BGMI and others can recover to their prior highs very quickly, sometimes even in less than a year. We can expect this today as well especially if gold begins to climb higher. However, most juniors (which now number in thousands) will never see their prior peaks of glory. Many of them will go out of business, others will be acquired, others will merge. The entire junior stock landscape is going to be redesigned. But high quality, cash rich junior producers and explorers which sit of good deposits will undoubtedly have a bright future.

This is an excerpt from the Resource Stock Guide Newsletter published on October 25, 2008.

 


 

Boris Sobolev

Author: Boris Sobolev

Boris Sobolev
Denver, Colorado
www.ResourceStockGuide.com

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