RE: 4 DAYS...25 Jul 2020 14:44
Hi Sotolo and All!
I'm thinking that we need to be on the lookout for two different kinds of correction.
The first kind of correction would be gold-market only and essentially benign. At some point a good economic news headline may trigger a burst of profit-taking in gold from short-term traders, followed by a wave of stop loss selling. This could be fairly dramatic (back to $1800? / $1750?) over the short term, considering how far and fast gold has risen. However, the basic conditions for the rally in gold would still exist, so the dip would be bought in due course, and we would go back up again. Obviously, it would be better to sell at the top and buy the dip, but holding through such a gold-market only correction would not be a disaster.
It's the second kind of possible correction I fear. The wider stock market, and the bond market, and tech stocks in particular, are in a huge, ugly bubble. And this in a time of mass unemployment and the mass bankruptcy of small businesses. IMO, all it takes is one unexpected bad news headline (i.e a pin) to burst this bubble. (At a guess, the headline might well be about a further serious deterioration in U.S. - China relations). This would lead to a broad-based stock market sell-off as people exit highly leveraged positions, and it would lead to the same kind of "dash for cash" that we saw back in March. Since people would need to sell what they can for what they can get to cover margin calls etc., money would flow out of gold ETFs (which have grown in size enormously over the last few months), crashing the gold price, and the miners along with it. If this does happen there would be a once in a lifetime buying opportunity for shares in gold miners at the bottom of the drop, but we could plummet up to 50% first. I think it's worth keeping quite a lot of powder dry and ready for that opportunity, if it ever comes.
As for what else to buy but gold right now? I'm struggling with that. There might be a bit of money still to be eked out of bonds, but how much lower can yields really go? And the risk of a reversal in the bond markets is real. As for stocks, well there are some profitable defensive stocks with really strong balance sheets around, but even they would suffer in the kind of crash that (it seems to me) we are headed towards. So, for me it is cash - but not cash kept in dollars or sterling. And a little money in a platinum ETF, because platinum is so cheap against gold on a historical basis it can really only go one way. And a little money in a Vietnam ETF, because that is one country that might benefit from a complete breakdown in US-China relations.
All in IMO, of course!
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