“It’s very easy to say, ‘be greedy when others are fearful,’ but it’s another thing entirely to actually do it.” That’s what I wrote five years ago about gold and the gold mining stocks. It was widely feared at the time that the gold price was poised to break down below $1,000. As an asset class, gold was widely denounced and the mining stocks were absolutely despised. Since then, however, courageous contrarians have been rewarded by the gold price rising 75% and the Gold Miners Index rising 215%, nearly four times the rise in the S&P 500 Index.
Much of that outperformance has come very recently as gold has surged to nearly $2,000 taking it 20% above its 40-week moving average. These are the gold “fireworks” I saw on the horizon a couple of years ago.
At this point, however, I’m reminded of another favorite Warren Buffett quote:
“What the wise do in the beginning, fools do in the end.”
Now, I’m not saying that this is the end of the bull market in precious metals, by any means, but I do believe that the fear towards gold and the miners that made them such a great buy over the past few years has been exorcised by a fabulous rise in price. For this reason, it may not make sense to be as greedy here anymore as we enter into the “foolish” stage of the bull market.
In other words, a more tactical and discerning approach may now be warranted as the risk/reward equation shifts. After all, fireworks shows don’t last forever.