From 1974-76, Barrons Gold Mining Index fell 67% while in 2011-13, HUI Gold Bugs Index fell 66%. From 1974-76, gold prices fell 47% and stock markets recovered from the 1973-74 recessionary trend
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CHICAGO (Bullion Street): Gold, Gold stocks and commodities seem to be mirroring the trends that were seen in 1974-76 bear market and this present a great opportunity to trade in gold and silver stocks, according to Jordon-Roy Byrne, Editor and Publisher of The Daily Gold.
Using comparative charts for gold stocks, gold stocks and S&P among others, Byrne pointed out that bottoming out process in precious metals is swiftly moving into its final stages.
From 1974-76, Barrons Gold Mining Index fell 67% while in 2011-13, HUI Gold Bugs Index fell 66%. From 1974-76, gold prices fell 47% and stock markets recovered from the 1973-74 recessionary trends.
Excerpts from the report:
From 1974 to 1976 Gold declined 47%. From its 2011 top to 2013 bottom, Gold declined 37%. Why was the decline in the 1970s more severe? Gold was only free trading for less than five years. In that period the price exploded about 457% whereas in the present bull market Gold had risen 650% in 11 years. In the three years prior to 1974 top Gold gained 333% which dwarfs the 130% gain in the three years before the 2011 top. These figures explain why Gold in the present bull market hasn’t had a deeper downturn
Relative strength in commodities
Typically Gold leads an inflationary cycle. Gold leads Silver which leads the commodity complex. However, in the mid to late 1970s, the CRB index (today’s CCI) bottomed before Gold. The CRB bottomed at the start of 1975 while Gold bottomed in summer 1976. After Gold bottomed, it regained relative strength. Interestingly, Silver also bottomed in 1974 and basically held steady for a few years while Gold declined
Today, the CCI (old CRB) closed at 519. At the 2012 low it closed at 504. Gold closed at $1541 then and closed today at $1320. The CCI has strongly outperformed Gold over the last 17 months just as it did in 1975 and 1976. In the second half of the 1970s, commodities, following the recovery from the nasty 1973-1974 recession led the new inflationary cycle (rather than precious metals). Could we be seeing the same thing today? There are early indications. Oil has been strong for a while. Wheat and Sugar have broken out of their downtrends. Silver has outperformed Gold over the last few months.
To conclude, it makes total sense that the current decline in gold stocks is most similar to the 1976 decline. The current bear market followed 11 years of a bull market while the 1974-1976 correction followed 14 years of a bull market. None of the other bear markets are similar to todays. The two worst declines were in 1980-1982 (72%) and 1996-1998 (67% in BGMI and 72% in GDM).
The 1980 decline followed a 20-year bull market and a parabolic top in the metals. The 1996-1998 bear followed a three year cyclical bull that ended in a mania. Meanwhile, we’ve noted the similarities beyond the precious metals sector. The stock market has had a great run and dramatically outperformed precious metals. The economy is several years past a severe recession. Commodities as a whole have held up better than precious metals.