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Gold Miners Looking for a Major Turnaround


Here's why mean reversion for gold stocks will likely start in 2013.

Gold stocks are about as contrarian a sector that exists in the market right now. Even though gold hasn't had a down year in 12 years, gold stocks have now recorded two straight down years, the first time that has happened during this gold bull market. Shown below is the performance of the HUI Gold Miners Index (INDEXNYSEGIS:HUI) since 2003:

Relative to gold, gold stocks have had about the same amount of underperformance that they had from 2006-2008. This ended up leading to two years of outperformance by gold stocks over gold in 2009 and 2010.

Relative to the S&P 500 (INDEXSP:.INX) gold stocks did horribly last year, recording their worst performance since 2003. And this is the first time since 2003 gold stocks have underperformed the S&P 500 two years in a row. Notice that before the last two years, gold stocks had outperformed the S&P 500 by double digits almost every year, except for a down year against the S&P 500 in 2004. Even with two down years in a row though, gold stocks are still outperforming the S&P 500 over the long term.

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