Over the last couple weeks, gold and silver stocks have been clobbered. The flagship index that tracks this sector, the HUI, hemorrhaged nearly a sixth of its value in just 8 trading days! Frightened traders have been scrambling for the exits, dumping their PM stocks at any price to rush their capital out of harm’s way.
While such a freefall sounds very bearish, it is actually incredibly bullish. The mission of investment and speculation is to buy low and sell high, and the best times to buy low are when prices are plunging and traders are practically soiling themselves in fear. If you want to multiply your capital in the markets, the surest way to do it is to buy aggressively when nearly everyone else is rushing to abandon ship.
The infamous 2008 stock panic is a perfect illustration of this truth. Over just 5 weeks ending in late October 2008, the HUI plummeted a mind-blowing 57.2%. PM-stock traders were so caught up in the popular fear that they failed to realize that stock panics are not the Apocalypse. Markets perpetually flow and ebb, yet life goes on. We were buying aggressively near those panic lows, and were richly rewarded. Over the next 9 weeks, the HUI doubled!
While the recent sharp HUI selloff is trivial compared to that once-in-a-century stock panic, these same principles apply at a smaller scale. When a sentiment storm slams into a sector with strong fundamentals and leads to a blitzkrieg of selling, the new lows never persist. Extreme fear never lasts long, and as soon as the storm clouds of emotion start clearing the beaten-down stocks quickly rally back up to big gains.
Thus the recent precious-metals-stock selloff has created awesome buying opportunities. Far from portending an endless death spiral lower as most traders seem to assume, today’s deeply-oversold HUI technicals are extremely bullish. For disciplined contrarian traders with the fortitude and wisdom to ignore the herd’s irrational hysteria, the HUI’s incredibly bullish near-term prospects are readily evident in these charts.
Precious-metals stocks have never been for the faint of heart. They are very volatile and unforgiving, but that’s their charm too as these wild moves create great opportunities. In the pre-panic years between 2000 and 2007, the average HUI upleg surged 94.4% higher over 8 months while the subsequent average…
