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Homestake Mining charts are the new black. They go with everything, even a Depression. They don’t show stains when doomsday prophesies spill all over them, and no matter what the occasion—inflation, deflation, bullishness, bearishness—you can whip them out and feel reasonably good about yourself.
That’s because they look like this:
“See,” we tell the naysayers, the doubters, the frightened and the obsessed. “A Depression is actually good for gold stocks! Just look at Homestake!” All the theory is missing is a Dust Bowl and a couple of soup lines.
The problem with relying on isolated historic worst-case scenarios for speculation, however, is that this is not 1930, despite what you might have gathered over the past several months of news coverage. Basing our market forecasts on nitpicked past events is like getting behind the wheel after five shots of tequila—we had no trouble driving after last night’s single glass of chardonnay, so what’s the worst that could happen?
Except in the case of gold stocks, the tequila came first, and it was bottled in the form of December 1929’s suspension of gold convertibility. Perhaps too often overlooked in discussions of Depression cause and effect, this suspension occurred before the crisis damaged core economies, and further, it wasn’t the first of its kind. A 1914-1927 suspension came before, and while not as thrilling as the 1930-1935 jump in the Homestake chart, a similar, milder pattern of increase can be seen after 1927. It is little wonder that an event that shook the very bedrock of the gold market sent the stock of its most prominent company running.
It is quite wondrous, however, that we fall back upon a pattern that has little in common with modern variables. Apart from a long-overdue refocusing and strategizing among mining and exploration companies, little has changed within the foundation of the sector between the autumn of 2008 and the present. The cyclical wheel of gold keeps turning, oblivious to hypotheses of a new Depression, bumping up against the US $1,000 glass ceiling just as it might in a hysteria-free vacuum. Consider the far less exciting Homestake chart in the years after its oft-cited snippet:
If we use it as a proxy for the gold price, its cyclical upswings and downswings are hardly revolutionary. They are, in fact, the metaphorical cave drawings of the sector, and we have been rather lazy archaeologists.
Because when we speak in terms of gold performing “because of” jagged downturns or crises in the larger global economy, we are doing the market a grave disservice. To say that a Depression, Recession, or any other downtrodden forecast du jour can be the sole driving force behind any sustainably wild movement in gold is inherently flawed; this is not merely because of the far more complex variables at play, but is demonstrated in history far more recent than Depression-era charts.
After all, during the feverish panic of September 2008, when the Dow molted like a lame duck and gold crested back towards the US $900 crescendo it had last seen in July, the stampede towards the “safe haven” conclusion plowed over all sense of reason. And seen on its own—much like the isolated 1930’s sliver of Homestake’s chart—it looks thrillingly significant.
Note the jump after September 17, the third-largest single-day point loss in the history of the Dow. It’s more than enough to provide a heady sense of déjà vu. However, let’s fulfill the wish of every junior trader on Wall Street and pretend it never happened:
 
And now we have a smooth cyclical pattern in the gold price, not unlike Homestake’s pattern after—and around—the sharp Depression spike. It’s not a matter of external economic factors not driving movement in gold, but rather a matter of that movement being unsustainable. Just as Homestake’s charts see a gradually-ratcheted upward movement on suspended convertibility before the Depression, and move cyclically in the following 10 years, so too has the pre-panic momentum of modern gold carried strongly over to the other side of headlines and hailstorms.
History and patterns are woven from the fabric of decades, not months-long blips and surges. Further, and perhaps most significantly, tying our theories and predictions to such a slim snippet not only causes us to miss the authentic current pattern, but positions us to project potentially incorrect patterns for the future as well. Taken at bare face value, both the historical Homestake chart and the jagged red teeth of 2008 gold charts point towards the volatility of nightmares. By their measure, we should be quite queasy by now, having ridden a rollercoaster that saw roughly a 40% change in the space of a few weeks. Yet the past 60 days in gold tell a different story:
The pattern holds firm; the gains and corrections stick to their course, delivering a net increase. Though the nuances have evolved, things are not so different from those first neolithic inscriptions.
And so when we look to the history of the sector to shed light on ongoing movements, we would do well to study the battles as part of the war, so to speak. What is most significant about the 70-year-old Homestake charts is not that the price jumped during the Depression, but that the larger pattern remained consistent—and the same can be said of our current post-panic era. Apocalyptic peaks and valleys mean little to gold’s continuing advancement when there is not, in fact, an apocalypse to be seen.
Sara Patterson
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