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Why Are Gold Stocks Down When Gold Is Up?

by Lobo Tiggre
Friday, August 07, 12:00pm, UTC, 2020

A lot of readers are writing in to ask why many gold stocks were off this week on days when gold was notching new record (nominal) highs. It’s not just disappointing; it seems like something just isn’t right. I understand the concern.

As gold was screaming up toward $2,000 per ounce, gold stocks displayed their longstanding leverage to gold prices. Gold would rise one percent, and gold stocks would rise three, four, or five percent. That pattern has held for decades, and not just for gold; it’s true of resource stocks in general. It’s a big part of why we buy them in the first place, not the commodities themselves.

(Exploration is different; rewarding discovery isn’t about rising commodity prices.)

So, what’s wrong—are gold and silver stocks broken?


First off, the leverage the stocks offer over their underlying commodities is a pattern, not a law. A couple contrary days or even weeks don’t mean the fundamental relationship has changed.

As I type, gold is up 33.9% year to date. The HUI Gold Bugs Index is up 45.5%, with the GDX and GDXJ ETFs up by similar amounts. That’s not as much above the price of gold as I’d normally expect, but it’s still positive leverage.

But why is the leverage less than normal?

It would take an extensive survey to say with much certainty, but the stocks were hit much harder than gold in the March meltdown. They’re starting from a lower base than the beginning-of-year figures suggest.

Gold is up about 38% from its March lows—but the HUI is up 113% since then. GDX is up 125.4%. GDXJ is up 174.6%.

There’s our leverage.

Also, producers (such as in the HIU, GDX, and GDXJ) have been under the shadow of COVID-19 shutdowns. If gold doesn’t go into reverse for an extended period, I expect earnings to add even more leverage to the upside going forward.

But still, why would a great company see shares drop one, three, or even five percent on a day when gold goes up $50?

Did the “smart money” see today’s sharp retreat coming (Friday, August 7, 2020) and take profits first?

I don’t think so.

Not so long ago, industry insiders were happy just to see gold holding above $1,500. The idea that gold might reach $2,000 per ounce was mentioned in dreamy voices—or laughed at—even more recently. Anyone who bought in thinking to take profits if gold ever spiked to $2,000 is looking at completing their trade. Their investment goal has been achieved.

In my view, it’s completely unsurprising to see a substantial amount of selling in gold stocks after gold took out a nice, big, round number like $2,000.

As bullish as I remain on gold, I’ve got Upside Maximizer trailing stops on my big wins.

One has been triggered already.

This is not because I’m a fair-weather friend, lacking faith in gold. As a speculator, I don’t operate on faith. And I won’t let big wins slip through my fingers, getting distracted by what I want to believe will happen. I want to keep my eye on the ball of what actually is happening.

And I think the smart money is doing the same.

Because as confident as we may be of our investment theses, none of us really knows what will happen next in the markets. That’s always true, but it’s doubly so in these uncharted waters we’ve entered in 2020.

So, I’m not sweating a bit of profit-taking.

Actually, I see it as an opportunity.

I’m revising my shopping list in light the current weakness, hoping to buy some companies that got away from me before.

But I will be watching this trend carefully. As I just wrote not so long ago, if the gold and silver stocks trade persistently lower, even as the metals themselves continue rising, it would be a sign that the metals are about to peak.

Caveat emptor,



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