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SPDR Gold Trust (ETF) (GLD), iShares Gold Trust (ETF) (IAU): What Gold’s Crash Can Teach You About the Stock Market

Afterward, interest in SPDR Gold Trust (ETF) (NYSEARCA:GLD) climbed for well over a year, and assets didn’t peak in tonnage terms until January 2013. Getting out at that point would have saved you from the full extent of gold’s subsequent losses, but you still would have missed the top by about 15%.

3. In any asset class, some investments are more vulnerable than others to reversals.
Whether you’re talking about stocks, bonds, gold, or any other asset class, different investments can perform very differently. As badly as gold has performed since its top two years ago, gold-mining stocks have done much worse. The Market Vectors Gold Miners ETF (NYSEARCA:GDX) has lost 58% of its value in the past two years, and the Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ), which concentrated on smaller players in the industry, lost two-thirds of its value since 2011.

Gold miners essentially had more leverage to the price of gold because their fixed costs meant that a drop in gold prices would cause a much larger percentage drop in profits. Some smaller companies have become unprofitable as a result of gold’s crash, leaving their futures uncertain. By contrast, the more stable companies with lower cost structures have held up relatively well, even if they haven’t avoided losses entirely.

It could happen to stocks
Before you rule out a crash for the stock market, keep one thing in mind: A decline of the same magnitude that gold has seen would still leave the stock market about 75% above its 2009 lows. By realizing how ineffective some of the escape hatches that gold investors thought that they’d be able to use to avoid losses turned out to be, you’ll avoid making the same mistakes with stocks and other parts of your investment portfolio.

The article What Gold’s Crash Can Teach You About the Stock Market originally appeared on Fool.com is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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