Gold Stocks Implode. Is Gold Next? And, What Happens After That?

A few months ago, I wrote about gold junior stocks imploding. Most are down 70-90%. Now, the gold majors have imploded as well. The above chart is of the gold miners exchange traded fund, GDX, that contains most of the major gold producers. These stocks are finally getting to a level where they are becoming attractive. A few more shoves lower would be nice. As I have written more than once, I don't like gold as an investment. I definitely don't like gold miners as an investment. But, as part of a well devised hedging strategy, the underlying stocks are obviously much more attractively priced from a fundamentals standpoint.

It wasn't too long ago that we were bombarded with messages that the dollar was going to implode and gold was going to upwards of $5,000 an ounce. And, that buying gold stocks was a great strategy. Some even said the only strategy. It indeed was a great strategy - to go bankrupt.

First gold juniors imploded. Then gold majors. Is gold next? At some point in this cycle I expect gold to drop significantly as I wrote long ago. The pressing question if gold should drop is what happens after a plunge. As I have written on a few occasions, there is a scenario that could develop where gold rises in unison with the dollar. We saw a glimpse of something similar to this in the last month. Gold didn't truly rise in conjunction with the dollar but it didn't go down appreciably either. In other words, it showed glimpses of breaking its inverse relationship with the dollar as we said it might. The key word is might. If there was ever a time in the last one hundred years to pay attention to gold, it would be from this point forward.

Should gold and the dollar become positively correlated, global volatility will likely reach crisis levels. Should that happen, I might just become a gold bull.