Gold tends to be up (on average) when the S&P 500 is down, as evidenced by its Downside Capture of -27% (translation: Gold is up on average 0.27 times the S&P 500’s decline). By extension, many assume that the Gold Miners display a similar if not enhanced profile.
The problem is that Gold Mining stocks are still stocks, and while they may have a low correlation to the S&P 500 (0.17), the correlation is still positive. Since its inception in 2006, GDX has a Downside Capture of 60% versus the S&P 500 and has been down 53% of the time when the S&P 500 is down. It has basically been worse than a coin flip to bet that Gold Miners will be up in a down market for stocks broadly.
That’s not to say that the Miners can’t be a hedge at times. They certainly can be, as they are up 47% of the time when the S&P 500 is down. But one can hardly say that they are a “good hedge” when they are down 38% in October 2008, one of the worst months in history for the S&P 500 (-16.5%).
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