Junior gold stocks suffer in market meltdown - is this 2008 over again?

What a day on the stock markets! Major indices dropped like a stone with the FTSE, S&P and Dow all diving between 3 and 5% in the worst fallout for nearly three years. Will it end here or are we seeing another major market meltdown similar to that of October 2008? The meltdown continued overnight with the Nikkei, Hang Seng and Australian stock exchanges all also plunging around 5% or more.

If indeed we are seeing a new meltdown what lessons are to be learnt from the 2008 crash? Firstly that good stocks fall alongside the dogs and secondly perhaps that although gold itself may fall, its fall will tend to be limited and its recovery far quicker than that of the stock market in general, and of junior miners in particular. Major and mid tier stocks are unlikely to fall as much as the juniors - and silver investors may be in for a particularly rough ride.

But the other lesson to be learnt is that such stock market episodes provide huge buying opportunities. In 2008 some of the better junior miners with strong balance sheets and good ore deposits fell back pari passu with the others, but if you can pick anywhere near the bottom some of the subsequent gains in the better equities made were enormous - maybe 1,000% in some cases. Metals prices likewise. Gold actually fell back relatively little in relation to stocks and made a rapid recovery getting back to its pre-crash levels within a couple of months. Significant gold producers also held up relatively well in comparison with those of other metals - except perhaps iron ore and coal - while base metal prices, the platinum group metals and silver in particular suffered really badly. And, mostly, they took the best part of 2 years to recover fully. One might hazard a guess though that silver's strong subsequent recovery - although it took over a year to really take off - may keep this precious metal's fall relatively muted on this occasion - if there is indeed a full blown market crash.

Gold fell - not because of fundamentals but because people needed liquidity to counter losses elsewhere so anything of value needed to be sold. (more)