Gold Stocks During Deflation/Depression

[explodingdust]

What do you think about adding a portion of gold stocks to the PP in place of bonds? From the data that I've read, gold stocks surged over 500% during the great depression from 1929-1933. Homestake Mining stock rose from $80 in October 1929 to $495 per share in December 1935 - a return of 519% (excluding dividends) during the bear market.

Also looking at the bear market from 1973-74, the S&P 500 lost almost half its value while The Gold Mining Index appreciated more than 260% from its 1973 low of 40 to its 1974 high of 147.

In 2008 however, gold stocks did not do that well although they lost much less than regular stocks.
I'm a little nervous about having too much money in long-bonds due too the fears of a bubble and the government's increasing amounts of debt, so I was thinking that a portion of gold stocks could supplement the protection that bonds provide during bear markets while also offering further diversification. What do you think?

[Pointedstick]

I'm a little nervous about having too much money in long-bonds due too the fears of a bubble and the government's increasing amounts of debt, so I was thinking that a portion of gold stocks could supplement the protection that bonds provide during bear markets while also offering further diversification. What do you think?

I used to worry about this too. Then I read this: http://pragcap.com/understand-the-moder ... ary-system

The bond market is not stupid. If bond traders were worried about a U.S. default, treasury bond yields would be above 7 or 8 percent, like they are in Spain and Greece. Instead, you see that they're plummeting. The market clearly knows what the pundits don't know or won't admit!

[Greg]

I'm a little nervous about having too much money in long-bonds due too the fears of a bubble and the government's increasing amounts of debt, so I was thinking that a portion of gold stocks could supplement the protection that bonds provide during bear markets while also offering further diversification. What do you think?

I used to worry about this too. Then I read this: http://pragcap.com/understand-the-moder ... ary-system

The bond market is not stupid. If bond traders were worried about a U.S. default, treasury bond yields would be above 7 or 8 percent, like they are in Spain and Greece. Instead, you see that they're plummeting. The market clearly knows what the pundits don't know or won't admit!

I would agree with this and also state that I wouldn't worry about having too much money in the long-term bonds. If you're following the PP-way, you'll have 25% in long term bonds and 25% in short term bonds creating a barbell effect. You get the volatility of the long term bonds which you can use for rebalancing while you have the consistent (if measly) returns of cash.

And from what I've read, it seems mining does have correlation with the gold price but in the end it is still a company that works just like the rest in terms of having the economic realm contracting or expanding. I'd have to see a pretty compelling argument to start favoring gold mining stocks but it would make a very good VP strategy idea I would think.