Time in The Market Versus Timing The Market — Gold Mining Stocks

Time in The Market Versus Timing The Market — Gold Mining Stocks

Yesterday, we ventured down the rabbit hole…

The fiat currency system rabbit hole.

Not many people ever find their way out. Most don’t even know they’re in it.

My personal Sherpa out was gold. As well as gold mining stocks.

But not without some steep learning curves.

The key lesson being: it is TIME IN the market that makes you successful, not TIMING the market.

That’s not to say you can’t time the market. I have a lot of respect for those who try it. And deep admiration for those who succeed at it (there aren’t many!).

And so today, we pick up where we left off…

The gold market from mid-2013 was a roller coaster ride.

I’d love to say doubling down my income and savings into gold stocks led to a happily ever after.

If only!

You know that enthusiasm you feel when you first learn something new? Like when you first learn to ride a bike. Or drive a car. Whatever it is, you immediately want to jump in and try it out.

In my case, it was when I first saw the fiat currency system for what it is: fraudulent and unsustainable.

I realised gold is the only real money. It is scarce. And it cannot be printed.

It seemed so obvious. As a result, I wanted to jump in…and buy as many gold stocks as I could.

It was going to be pretty easy to make money, wasn’t it? Surely?

Ha! Of course, no.

Take a look at the ASX Gold Index [ASX:XGD] during this period. It’s an index of gold mining stocks:

ASX Gold Index Chart

Source: Thomson Reuters Datastream

[Click to open in a new window]

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Now, you might point to June 2013 and December 2015 as great entry points.

I’m sure there were a few people who picked these points and enjoyed big gains. Bull market, bear market…it didn’t matter for these investors. Pick the trend, ride the momentum and get out before it turns.

In the other camp, fundamental investors (myself included) were initially baffled. Our seemingly cheap gold stocks only got cheaper by late-2014 when the market bottomed out.

Looking back, these gold stocks really got hammered. Pounded.

Newcrest Mining Ltd [ASX:NCM] traded at less than $7 in December 2013, down from $42.66 at its peak in April 2011.

And do you remember St Barbara Ltd [ASX:SBM] trading at 7 cents in December 2014?

If I’d said back then that St Barbara could be $5 in the next 10 years, you’d have laughed at me. (Well, St Barbara did reach $5…but just four years later in July 2018.)

The 30 months from July 2013 to December 2015 was a frustrating and at times painful journey.

You’d watch your portfolio and experience moments of recovery, only to see sharp moves down again.

If you lived through this and can still remember it, let me ask a few questions:

Did you, like me, find encouragement from experts like Eric Sprott, Rick Rule and Peter Schiff?

They reminded you about the merits of investing in gold stocks…and the need to ride out the wave.

They were like emotional boosters at the time of discouragement. But it felt like eons before their experience and wisdom became even a partial reality.

Did you read reports and wonder why gold and gold stock prices were not heading higher?

And what about in the second half of 2014 when companies started to turnaround?

I for one was glad I persisted. The oil price halving in the second half of 2014 gave me just enough ‘hopium’ (the intoxicating drug of hope) to stay on.

Now look at the oil price in the second half of 2014. That was a huge decline, only dwarfed by the early 2020 plunge that sent oil going negative (and toilet rolls were more expensive than oil, go figure!):

West Texas Intermediate Crude Oil

Source: Thomson Reuters Datastream

[Click to open in a new window]

Now what does oil have to do with gold miners?

Machinery needs diesel. Lots of it. A high oil price keeps the expenses up, leaving less profits and cash flow for the shareholders. With oil falling, this gave the gold stocks fuel for the price boost.

Looking back at the bear market, I think both the timers of the market and those who did their time in the market were rewarded handsomely.

The timers of the market could have picked up some profits in short-term trades as these stocks were very volatile.

Those who did their time in the market were rescued partly by what Rick Rule called ‘the cure for low prices is low prices’. The macroeconomic shift in the oil market also boosted the cash flow generating potential of gold stocks.

The greatest winners in my view build their character through adversity.

You do not strengthen through victory. You become victorious through building your character.

And that’s true with life, just as it is with investing.

I’ll leave you with that reflection for the weekend.

Tune in next week for more thoughts and musings on the economy, the markets and the fiat currency system’s slide into oblivion.

Yours sincerely,

Brian Chu Signature

Brian Chu,
Editor, The Daily Reckoning Australia

PS: I’m interested in hearing your war stories. Did you live through the gold bear market back in 2013? Or perhaps it was another significant bear market? If you do want to share yours story, reach out to me here with subject line as ‘DR War story’, as I would love to hear it! ?