If gold goes up, but the stock market goes down, will gold stocks go up or down?

Discussion in 'Commodity Futures' started by DrPepper, Dec 4, 2009.

  1. The stock market and gold have been moving in the same direction since March of this year. But what if we had a severe multi-week stock market correction, combined with rising gold prices. Would gold stocks go up along with the price of gold or down with the general stock market?

    In other words, if you were bullish on gold but bearish on the stock market, would you invest in gold only or gold stocks as well?
  2. 1) Gold stocks could trade like a "commodity" and rise along with the underlying gold price.
    2) Gold stocks could trade like an "equity" and fall with the overall market and experience P/E multiple contraction.
    3) It's similar to drought conditions with grains. Those gold producers who actually produce gold should benefit. Those that are not extracting gold from the ground should not benefit.
    4) The positive correlation between stocks and gold should persist and not uncouple/diverge because there is too much money invested in it. United they rally, united they decline. :cool:
  3. Depends on why the market rise. If market rise because dollar depreciate, then gold will most likely rise. This is what we have been seeing.

    However, if market rise because of the fundamental change (faster than expected recovery) in the US economy, which lead to speculation in interest rate hike, then US dollar is expected to appreciate making gold less favorable as a safe haven, which will lead to a decline in gold price.

  4. It may be instructive to look at the charts on a divergence day, such as Friday when, in the morning at least, the market moved up big and gold moved down big. Compare SPY, GLD, and a miners stock like GDX, for example.
  5. For the first 4 or 5 years of this gold bull market, the stocks were the place to be. They usually led gold and buy huge amounts. Now they really follow the market in general as much as they follow gold. If both gold and the general market are up, then yes they will be up significantly, but if gold is up and the general market goes down, you would be lucky to see the gold stocks break even. I believe it is a dollar issue as Pension Admin. stated, but also it is a paper vs physical issue. People want the actual physical much more than they want the paper. That is why the mints run out of coins so quickly.

    US Mint Ends 2009 Buffalo Gold Bullion Coin Sales, Inventory Depleted
    By Mike Unser on Dec 4th, 2009 in Coin or Numismatic News, Press Releases and Announcements, United States Mint News and Information | No Comments [​IMG]

    2009 Gold Buffalo Bullion CoinThe United States Mint today ended the sale of 2009 American Gold Buffalo Bullion Coins, telling customers in a memo that its inventory has been depleted and that no more of the 2009-dated coins would be produced.

    "The United States Mint has depleted its inventory of 2009 American Buffalo One Ounce Gold Bullion Coins," the US Mint stated in a memorandum to authorized purchasers of the precious metal coins. "No additional inventory will be made available. As additional information becomes available regarding 2010-dated American Buffalo One Once Gold Bullion Coins, you will be notified."

    Despite their late Oct. 15 release date, sales of the bullion Buffalos topped those from 2008 and 2007, as the following table shows:

    American Buffalo Bullion Coin Sales: 2006 - 2009
    2006 Gold Buffalo 2007 Gold Buffalo 2008 Gold Buffalo 2009 Gold Buffalo
    January 0 14,000 21,500 0
    February 0 37,500 6,000 0
    March 0 28,000 15,000 0
    April 0 6,500 13,000 0
    May 0 4,500 5,500 0
    June 99,500 5,500 5,500 0
    July 117,500 5,500 9,500 0
    August 22,000 13,000 34,500 0
    September 33,500 8,500 36,000 0
    October 21,500 5,000 0 116,500
    November 10,000 15,500 25,500 67,500
    December 19,000 24,000 0 14,000*
    Total 323,000 167,500 172,000 198,000

    *As reported by the US Mint on Dec. 4, 2009.

    With new record gold prices and the recent Mint suspension of the one ounce bullion 2009 American Gold Eagle Coins due to a depleted inventory, demand for US Mint bullion coins has risen even higher. Fractional 2009 Gold Eagles launched Thursday to a record selling pace, with one day sales that approached totals from all of 2008.

    In a separate memo today, the US Mint also told authorized dealers that "the American Eagle Gold Tenth-Ounce Coin inventory was depleted" and that "inventory for the half-ounce and quarter-ounce coins remains very limited." Following the sale of these remaining gold coins on Friday, the Mint anticipated that it would again offer all fractional sizes by mid-December, but in an allocation process.

    The resumption of American Silver Eagle bullion sales will resume on Monday. These silver coins were suspended along with the one ounce gold coins last week due to depletion.

    The US Mint sells bullion gold coins for a small amount over the current spot price of gold, but only to authorized purchasers. The authorized purchasers in turn resell the coins to coin dealers, precious metal providers and/or directly to the public.

    Both the obverse and reverse of the Buffalo coin is the same basic design that first appeared on the 1913 circulating nickel, commonly known by most as either the “Indian Head Nickel” or the “Buffalo Nickel.”

    The obverse has a portrait of a Native American, said to be a composite of three Indian chiefs. Many have claimed to be one of those three models, but only two were ever verified by the artist James Earle Fraser; Cheyenne Chief Two Moons and Lakota Sioux Chief Iron Tail.

    The reverse contains an image of an American buffalo, also known as a bison. It is believed by many to be modeled after the creature named “Black Diamond” who lived in the New York City Zoo.

    The US Mint also offers a numismatic or collector 2009 Buffalo Gold Proof Coin.

  6. I like gold, but seriously, it will never replace the real currency because of two major factors:

    1) Cost of storage
    2) Cost of verifying authenticity

  7. Yes, but currency should be backed by gold and silver. Otherwise the Fed is going to put us all in the poorhouse.
  8. You are right. The Fed has been printing money like crazy and they do need gold and silver to back up the dollar, or else it will depreciate even further.

    However, we have gotten away from relying on gold and silver to back up the value of the dollar for awhile. What has been backing up currencies in general is interest rate.

    What the Fed is doing right now is trying to depreciate the dollar enough so that people will rather spend their money than to save it, which they would hope to increase sales, which lead to increase in business activities, which leads to more employments, which leads to more people spending, and eventually lead to the appreciation of the dollar from an expected increase in interest rate.

    If there is any sign that the Fed is succeeding in doing so, the gold and silver run will be done.

  9. Sounds like a Ponzi scheme
  10. Yep. It's Capitalism driven by expectations.
    #10     Dec 6, 2009