Gold was one of the hottest trades of 2025. So when investor greed turned to fear, the metal took a hit...
Gold fell nearly $1,000 an ounce from peak to trough in March. It was a brutal short-term sell-off. And that led to an even worse decline in gold stocks.
Gold miners dropped 30% in just a few weeks. And as a result, the sector became massively oversold.
But the rebound is already underway.
Gold stocks have erased much of their losses since then. And according to history, we should expect more gains in the months ahead...
Don't Give Up on These Boom-and-Bust Miners Yet
A hot trade always ends the same way... with a big fall. But that doesn't mean the long-term trend is over.
That's the setup we have right now with gold stocks. The sector soared... then crashed when the Iran conflict sent everyone into panic mode.
The drop caused gold stocks to hit oversold levels last month based on the relative strength index ("RSI").
The RSI tells us if an asset has moved too far, too fast in either direction. When that happens, a snap back often follows.
We've seen that happen with gold stocks in recent weeks. The benchmark Philadelphia Gold and Silver Index ("XAU") hit an RSI just below 27 last month.
(This index has silver in its name, but it's largely a basket of gold miners. We're using it because it has the longest history, dating back more than 40 years.)
After those oversold levels, though, the RSI quickly recovered to above 50 in just eight trading sessions. Take a look...
This is a textbook example of moving too far, too fast. Gold stocks collapsed... But then, sellers hit exhaustion, and prices bounced back.
We can expect the recovery to continue as well. That's because history shows this setup leads to continued outperformance.
To see it, I looked at instances where the RSI dropped below 27 and then rose back above 50 within eight trading days. We've only seen this setup for XAU 10 other times in the past 42 years. But history shows that these snapback rallies tend to stick. Take a look...
Now, gold mining is a tough business. Over the past 42 years, the sector has returned just 3% per year. But this boom-and-bust sector can lead to incredible returns in the right environment.
Similar setups to today led to gains of 2.2% in three months, 5.7% in six months, and 13.4% over a year.
That doesn't tell the full story, though... because the individual returns vary a lot after these setups.
Specifically, we saw one big loss of 36% over a year. Without that loser, the typical one-year gain following these extremes rises to 21%. That's because we've also seen individual one-year gains of 112%, 76%, and 42%.
In other words, these setups generally work out incredibly well. But a major loss is also possible.
You should never hold gold stocks for the long term. These are boom-and-bust assets you have to be willing to part with. But history tells us we shouldn't assume the overall boom is finished yet.
Instead, history shows the gold-stock rally can last despite the recent pain. And the next year can lead to another big gain for gold stocks.
Good investing,
Brett Eversole
Further Reading
The world can't function without helium – but producing more of it is difficult. With supply shrinking and demand locked in, this market is setting up for a classic squeeze. And these tightening conditions can quickly turn into powerful upside for the companies that control it.
You don't need flashy growth stocks to succeed in the market. When investors abandon dependable businesses, prices can sell off too quickly. That's when patient investors can step in... and benefit from the eventual recovery.
Market Notes
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