It's hard to imagine the public's view on precious metals back in the early 2000s, back when companies like Sun Microsystems, and InfoSpace (INSP)
Over the course of the following decade, the entire asset class transformed. Gold (and gold stocks) soared, turning a onetime investment backwater into the market's most sought after asset. Gold has now been up for 11 years in a row.
With the strong returns came a wide proliferation of gold-following funds. Back in 2001, Central Fund of Canada (CEF)
What also changed was the public's level of comfort, not to mention portfolio allocation, with commodities and other alternatives. The same investors who in 1999 questioned owning anything besides Cisco (CSCO)
Physical gold satiates an emotional need just as much as a financial one, a nuance tapped by companies selling bullion who romance gold as "something you can hold in your hand."
As we've pointed out over the years, gold's benefit as a portfolio diversification has ebbed. Recently, gold has tended to rise and fall along with stocks, acting like a risk asset itself rather than a hedge to them.
As investors, we can't afford to play favorites or fall in love with any asset. Facts are facts, the reality of how market prices act always trumps how we think they should or hope they might act. Nothing is sacred.
And in the past few days, even the metal's most ardent fans noticed that gold stocks have shown considerable weakness, with a slew of influential and widely owned names nipping new yearly lows.
Take Barrick Gold (ABX),
As represented by the Market Vectors Gold Miners ETF (ETF),
Trading is, first and foremost observation. Look for gold stocks doing well right now and you'll find they're nearly impossible to find. Of course, companies are influenced by management and labor issues not impacting the metal itself.
The longer-term correlation however is self-evident. For most of the past three years, gold stocks led the metal higher, a relationship that began to deteriorate last fall as stocks slipped.
Now gold stocks at yearly lows, and even longtime fans of the metal should heed the objectively worrisome signs.—Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC