For bulls of precious metals, 2013 will surely go down as the annus horribilis of the last 20 years and indeed, the last quarter, most likely as the “quarter horribilis”! By the end of 2014 even we were questioning our rationale for remaining invested in the sector – probably the ultimate contrarian signal!
The chart below which is a good proxy for the global mid cap gold mining sector and is plotted relative to the S&P 500 says more than we could in perhaps ten thousand words. Underperformance is the word to sum it up.
When a sector takes a kicking of this magnitude, invariably the “baby gets thrown out with the bath water”. Something has either fundamentally changed with the investment proposition or, in contrast, sentiment has literally blown of the richter scale one way or the other. Over the last 13 years we have seen similar situations play out in a variety of asset classes and they have largely all, certainly from an asset class perspective as opposed to individual stock basis, rebounded with vigour in ensuing years after receiving a drubbing of the same degree that the gold miners have suffered this year. In fact it is a well known investment phenomenon that major underperformers more often than not top the league tables the following year.
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