Categories: General Market Commentary / Precious Metals
Topics: General Market Commentary / General Precious Metals

Gold Stocks Screaming Buy

Gold Stocks Screaming Buy

The gold miners' stocks are suffering from universal and overwhelming bearishness today, with nearly everyone expecting further selling. That's the natural reaction following this sector's recent massive correction, which climaxed in one of its biggest daily plummets ever witnessed. But within bull markets, there's no better time to buy aggressively than deep in a major selloff that's riddled with great doubt and fear.

The core mission of speculation and investment is so simple even children can easily grasp it, buy low sell high. The great challenges arise not from understanding, but execution. Actually buying low then selling high in real markets is exceedingly unnatural and uncomfortable. It requires traders to overcome their own greed and fear to do the exact opposite of everything their own instincts are screaming to do.

The only times speculators and investors want to buy aggressively is when it feels great to do so. That only happens late in powerful rallies, when everyone can clearly see how strong a sector's performance has been. Traders then commit one of trading's cardinal sins, extrapolating recent performance out into the indefinite future. They assume a red-hot sector will keep on rising, and eagerly rush to buy high after a rally.

That's exactly what happened in gold stocks this past summer. This battered sector finally skyrocketed higher in 2016 after hard years of neglect. By early August, the flagship HUI NYSE Arca Gold BUGS Index had blasted an incredible 182.2% higher in just 6.5 months! Who wouldn't love a sector that had nearly tripled in just over a half-year? Epic performance like that dwarfs everything else in all the stock markets.

So excited traders greedily threw capital at the gold stocks, succumbing to herd groupthink to believe this sector was on the verge of soaring even though it already had. That wasn't buying low, but buying high. I warned in early July as gold stocks were starting to peak that a major correction was inevitable after such a radical surge higher. While it tarried for a few more weeks, it eventually arrived with a vengeance.

Buying high into widespread greed after a powerful rally is very foolish, as markets always experience sharp reversals soon after popular emotional extremes. The only traders who rode gold stocks' mighty new bull to multiply their wealth were the smart contrarians who bought in low early in 2016. That was when gold stocks were universally despised, languishing at fundamentally-absurd price levels relative to gold.

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