After three years of pain, can gold stocks break their losing streak and see a gain in 2014?
History says chances are good.
The most recent string of losses in the gold mining industry has been brutal, causing many investors to give up on the sector and sell their holdings. Since the beginning of 2011, the NYSE Arca Gold Miners, the FTSE Gold Mines, and the Philadelphia Gold & Silver Indices all declined more than 60%.
But ditching this sector may not be the best action to take this year because miners are approaching the historical limits of multi-year declines.
Take a look at the Philadelphia Gold & Silver Index (XAU) during prior periods of stress. While gold stocks have a history of higher volatility compared to the overall U.S. market, consecutive periods of declines are rare. In 30 years, the XAU never had a losing streak of more than three years.
In fact, there were only two previous times in these three decades in which the XAU saw a trio of losses.
One was back in the early 1990s, when the index fell 19.09%, 16.75% and 11.75% in 1990, 1991 and 1992, respectively.
What’s striking about this period is the incredible rebound that followed. The XAU rallied 85% in 1993. U.S. Global Investors’ Gold and Precious Metals Fund (USERX) climbed even more, increasing a whopping 124% in 1993. See recent performance of USERX.