As we can see in the H4 chart, the uptrend continues. After finishing a Shooting Star pattern not far from the resistance level, XAUUSD has failed to reverse and right now is still moving upwards. In this case, the upside target may be at 1890.00. At the same time, an alternative scenario implies that the pair may correct towards 1850.00 after updating the highs.
NZDUSD, “New Zealand vs. US Dollar”
As we can see in the H4 chart, the ascending tendency continues. After forming a Hanging Man pattern close to the channel’s upside border, NZDUSD has reversed and right now is updating its highs. Later, the market may continue growing to reach the next resistance level at 0.6725. Still, there is another scenario, which suggests that the instrument may correct towards the support area at 0.6650.
GBPUSD, “Great Britain Pound vs US Dollar”
As we can see in the H4 chart, the pair is still forming the ascending channel. After forming a Shooting Star pattern close to the resistance level, GBPUSD has reversed. At the moment, the price is expected to continue trading upwards. In this case, the upside target remains at 1.2800. However, there might be another scenario, according to which the price may fall to return to 1.2657.
Attention! Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.
– The move we saw in Silver early this week to new 6-year high price levels, above $22.60, is quite likely the biggest upside move in Silver since the bottom in March 2020 – after the US stock market collapsed because of the COVID-19 virus event. This new rally in Silver is likely the move we’ve been suggesting to our followers relating to a series of measured upside price moves totaling approximately $5.30 in each advance.
As traders, watching bonds accelerate moderately higher as the US Dollar falls and the stock market attempts new lofty levels, we are intrigued by the move in metals because it suggests a large segment of investors believe a bubble is nearing very peak valuation levels. The only reason metals, particularly Silver, would be accelerating as it has recently is that traders have suddenly adopted a stronger demand for second-stage hedging of risk.
Gold is the traditional hedge for many traders in times of risk. Silver, being the second-tier hedge, typically start to rally 4 to 6+ months after Gold begins to move substantially higher. Gold is currently trading near all-time highs – near $1820. Silver just recently bottomed in March 2020 near $11.65 and has rallied more than 70% to current levels – above $20.35. If our research is correct, Silver will rally to levels above $26 within this current upside rally.
The multiple measured moves in Gold and Silver suggest waves of price advances happen in a series of structured upside price moves. We believe this current upside move in Silver will push price levels above $26 per ounce. If Gold continues to rally as Silver rallies, then future measured moves should target $31.50 and $36.75 in Silver – possibly higher.
I recently talked about silver specifically in both of these videos. The detail of what to expect and timing of the breakout is explained in layman terms and both short term traders and long term investors will benefit. No matter if you like miner stocks or if you buy physical metals, there are two videos you should watch/listen to.
Recently, Gold has move moderately higher while Silver has really started to accelerated more dramatically. The move in Gold, compared to Silver, is like to push to levels above $1950 fairly quickly as the risks to the credit/debt and stock markets become more evident over time.
The Gold to Silver ratio is currently at 89.1. It peaked in March 2020 at 126.6. Historically, after a peak in this ratio is established at a time when the global stock market enters a period of contraction or extreme risk. From the peak in the Gold to Silver ration in late 2008, the ratio contracted over 63% to bottom in mid-2011. That bottom in the ratio was very close to the peak in Gold and Silver price levels.
If a similar type of price decline happens in the Gold to Silver ratio, it should fall to levels near 47.5 from the current level near 90. This represents a substantial drop in the ratio level – which translates into a continued rally in both Gold and Silver until a peak syncing of price between Gold and Silver is reached. Once the Gold to Silver ratio contracts below 60, it is likely that both Gold and Silver will begin to rally in similar price ranges. That will be a very exciting time to watch for gold and silver bugs because both Gold and Silver could rally 8% to 15% each week (or more).
Once Gold reached the $1950 level, the next measured move target, subsequent target levels are $2200, then $2450. Remember, traders, move into metals to hedge against risks they perceive in the stock, credit markets, and global economy. At this point, we have to believe traders are pumping capital in Silver as Gold nears recent all-time highs. We can’t ignore the fact that traders are actively hedging unknown risks in the markets aggressively in metals.
In fact, if you consider what the US Fed, global central banks and governments have attempted to accomplish over the past 6+ months and what has happened in Gold and Silver over the past 3+ years, it suggests traders have been actively hedging against market risks for over 2+ years. They are more aggressively hedging right now – which suggests there is a very strong fear that the markets are trading on borrowed-time near these current high price levels.
Our passive investor signal newsletter which tells you when to own stocks, bonds, and metals has been long gold since it started a new bull market of July 2019. We have since added large-cap gold miners which have also started a bull market this year. Silver, well it’s just getting started, better late, than never!
We’ve continued to urge traders to stay cautious over the past 12+ months because of the risks identified by our proprietary modeling systems and our super-cycle research. Right now, we believe the risks of a major contraction in the US and global markets are still rather high. The new highs in the NASDAQ are evidence of a DOT COM-like disconnect in the markets. The US stock market is not rallying in a healthy manner – certain segments are rallying because they are still generating profits while the COVID-19 virus blows holes throughout the global economy.
Pay attention to what is happening in Gold and Silver because they are screaming “risk is excessive throughout the world” and traders that are chasing the rally in the US stock market could wake up to a very sudden surprise soon.
Get our Active ETF Swing Trade Signals or if you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Passive Long-Term ETF Investing Signals which we are about to issue a new signal for subscribers.
Chris Vermeulen Chief Market Strategies Founder of Technical Traders Ltd.
NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research. It is provided for educational purposes only. Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed.
The US dollar continues to lose ground against a basket of world currencies. EUR/USD quotes have reached the round level of 1.1600. The 1.1545 mark is already a “mirror” support. Relations between Washington and China have escalated again. The US ordered to close the Chinese consulate in Houston. A weak report on existing home sales in the US put additional pressure on the American currency. The demand for greenback is still low. Nevertheless, a technical correction is possible in the near future. We recommend opening positions from key levels.
The news feed on 2020.07.23:
– Initial jobless claims in the US at 15:30 (GMT+3:00).
Indicators signal the power of buyers: the price has fixed above 50 MA and 100 MA.
The MACD histogram is in the positive zone, but below the signal line, which gives a weak signal to buy EUR/USD.
Stochastic Oscillator is in the neutral zone, the %K line is below the %D line, which indicates the bearish sentiment.
Trading recommendations
Support levels: 1.1545, 1.1500, 1.1460
Resistance levels: 1.1600, 1.1650
If the price fixes above 1.1600, further growth in EUR/USD quotes is expected. The movement is tending to 1.1640-1.1660.
An alternative may be a decline in the EUR/USD currency pair to the round level of 1.1500.
The GBP/USD currency pair
Technical indicators of the currency pair:
Prev Open: 1.27264
Open: 1.27159
% chg. over the last day: -0.02
Day’s range: 1.26984 – 1.27539
52 wk range: 1.1466 – 1.3516
The GBP/USD currency pair has become stable. At the moment, the British pound is consolidating. Quotes are testing local support and resistance levels: 1.2700 and 1.2745, respectively. The technical pattern signals a possible correction of a trading instrument after a significant increase since the beginning of this week. We recommend paying attention to the news feed on the US economy. Positions should be opened from key levels.
The publication of important UK economic releases is not planned today.
Indicators do not give accurate signals: the price has crossed the 50 MA.
The MACD histogram is near the 0 mark.
Stochastic Oscillator is in the neutral zone, the %K line is below the %D line, which indicates the bearish sentiment.
Trading recommendations
Support levels: 1.2700, 1.2660, 1.2635
Resistance levels: 1.2745, 1.2765, 1.2800
If the price fixes below 1.2700, GBP/USD quotes are expected to correct. The movement is tending to 1.2660-1.2630.
An alternative could be the growth of the GBP/USD currency pair to 1.2780-1.2820.
The USD/CAD currency pair
Technical indicators of the currency pair:
Prev Open: 1.34599
Open: 1.34118
% chg. over the last day: -0.31
Day’s range: 1.33709 – 1.34196
52 wk range: 1.2949 – 1.4668
The USD/CAD currency pair shows a steady downtrend. The trading instrument has set new local lows. At the moment, USD/CAD quotes are testing the support of 1.3375. The 1.3425 mark is already a “mirror” resistance. The loonie has the potential for further growth against the greenback. We recommend paying attention to the dynamics of the “black gold” prices. Positions should be opened from key levels.
The news feed on Canada’s economy is calm.
Indicators signal the power of sellers: the price has fixed below 50 MA and 100 MA.
The MACD histogram is in the negative zone and below the signal line, which gives a strong signal to sell USD/CAD.
Stochastic Oscillator is in the oversold zone, the %K line has crossed the %D line. There are no signals at the moment.
Trading recommendations
Support levels: 1.3375, 1.3340, 1.3300
Resistance levels: 1.3425, 1.3460, 1.3480
If the price fixes below 1.3375, a further drop in USD/CAD quotes is expected. The movement is tending to 1.3340-1.3320.
An alternative could be a recovery of the USD/CAD currency pair to 1.3450-1.3480.
The USD/JPY currency pair
Technical indicators of the currency pair:
Prev Open: 107.204
Open: 107.115
% chg. over the last day: +0.35
Day’s range: 107.073 – 107.195
52 wk range: 101.19 – 112.41
The technical pattern on the USD/JPY currency pair is still ambiguous. There is no defined trend. Financial market participants expect additional drivers. At the moment, the following local support and resistance levels can be distinguished: 107.10 and 107.30, respectively. We recommend paying attention to the dynamics of US government bonds yield. Positions should be opened from key levels.
Today, Japan’s financial markets are closed due to the holiday.
Indicators do not give accurate signals: the price has crossed the 100 MA.
The MACD histogram is in the positive zone, but below the signal line, which gives a weak signal to buy USD/JPY.
Stochastic Oscillator is in the neutral zone, the %K line is above the %D line, which indicates the bullish sentiment.
Trading recommendations
Support levels: 107.10, 106.90, 106.70
Resistance levels: 107.30, 107.40, 107.60
If the price fixes above 107.30, USD/JPY quotes are expected to rise. The movement is tending to 107.50-107.70.
An alternative could be a decline in the USD/JPY currency pair to 106.90-106.70.
Equity markets are mixed currently after flareup in US-China tensions following US order that China close its consulate in Houston in 72 hours. Beijing called the demand a “political provocation” and vowed “China will undertake legitimate and necessary responses.” President Trump later said other consulate closures were “always possible.”
Forex news
Currency Pair
Change
EUR USD
+0.07%
GBP USD
+2.28%
USD JPY
+0.02%
The Dollar weakening persists currently ahead of US Labor Department report expected to show 1.3 million Americans likely sought unemployment benefits over the last week. The live dollar index data show the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, lost 0.1% Wednesday despite a report existing home sales jumped 20.7% in June. Both EUR/USD and GBP/USD continued climbing yesterday with both pairs higher currently. USD/JPY joined AUD/USD’s continued climbing yesterday with both yen and Australian dollar higher against the greenback currently despite Australia’s projections of record budget deficit.
Stock Market news
Indices
Change
Dow Jones Index
+0.02%
GB 100 Index
+0.19%
Nikkei Index
-0.14%
Futures on three main US stock indexes are rising currently after a bullish session on Wednesday. Earnings season continues with Intel, AT&T and Blackstone reporting quarterly results today. Stock indexes in US ended higher after better than expected corporate earnings reports: of the 58 companies that have reported results so far, 77.6% have reported results above expectations, compared with the average of 65% who reported above consensus estimates in prior quarters. The three main US stock indexes recorded gains ranging from 0.2% to 0.6%. European stock indexes are rebounding currently after a pullback Wednesday. Asian indexes are mixed today after reports China may retaliate to US instruction to close the consulate in Houston by demanding to close US consulate in Wuhan.
Commodity Market news
Commodities
Change
Brent Crude Oil
+0.81%
WTI Crude
+0.36%
Brent is rebounding today. Prices slipped Wednesday after the US Energy Information Administration report that US crude oil inventories rose unexpectedly by 4.9 million barrels last week. The decision by the Organization of the Petroleum Exporting Countries and allied producers, collectively known as OPEC+, to start easing record production cuts of 9.7 million barrels per day to 7.7 million barrels per day starting in August through the end of the year is seen as a downside risk by traders against the background of rising US domestic crude stocks. The US oil benchmark West Texas Intermediate (WTI) futures retreated: September WTI edged lower 0.05% but is higher currently. September Brent crude closed 0.07% lower at $41.14 a barrel on Wednesday.
Gold Market News
Metals
Change
Gold
+0.13%
Gold prices are extending gains today. August gold jumped 1.2% to $1865.10 an ounce on Wednesday.
Note: This overview has an informative and tutorial character and is published for free. All the data, included in the overview, are received from public sources, recognized as more or less reliable. Moreover, there is no guarantee that the indicated information is full and precise. Overviews are not updated. The whole information in each overview, including opinion, indicators, charts and anything else, is provided only for familiarization purposes and is not financial advice or а recommendation. The whole text and its any part, as well as the charts cannot be considered as an offer to make a deal with any asset. IFC Markets and its employees under any circumstances are not liable for any action taken by someone else during or after reading the overview.
Lower rainfall in Ivory Coast bullish for #C-COCOA
Rainfall in most of Ivory Coast’s cocoa growing regions were below average last week. Rainfall in the western region Soubre totaled around 3.4 millimetres (mm) last week, 21 mm below the five-year average, which was the case also in other western and central regions. And rainfall was also below average in the eastern region of Abengourou, known for the good quality of its cocoa beans. Ivory Coast is the top cocoa producing country in the world. Lower than average rainfall is bullish for cocoa price. On the other hand Barry Callebaut, the world’s biggest chocolate maker, revised its estimate of previously expected 85,000 ton deficit for global cocoa bean production for 2019/20 to a 6,000 ton surplus. An expected global surplus of cocoa is a downside risk for cocoa price.
By Hussein Sayed, Chief Market Strategist (Gulf & MENA), ForexTime
Tensions between the world’s two largest economies are on the rise. After ordering the shutdown of China’s consulate in Houston and claiming two Chinese hackers targeted US companies working on the virus and stealing information, we are yet to see the Chinese response. US-China relations have already been worsening since the beginning of the year on several fronts including the handling of the coronavirus, cutting Huawei’s operation in the US and abroad, revoking Hong Kong’s special status after China imposed a new national security law on the city and several other issues. However, the closure of a consulate is unprecedented and could take the cold war onto a new level.
The market reaction to the latest developments has been muted. US stocks managed to end Wednesday’s session near their multi-month highs, the Dollar continued its downward trajectory against its major peers and the damage was limited to Chinese equities and the Yuan to some extent – which is trading back above seven against the Dollar. Hopes for another round of US stimulus and better-than-expected earnings from the big tech firms is keeping the rally alive despite valuations becoming extremely overstretched. But if worsening US-China trade relations lead to re-imposing trade tariffs, then it’s likely to mark the short term top in equities.
Better than anticipated earnings from the likes of Tesla and Microsoft are not the true reason why stocks are at current levels. It is because monetary and fiscal intervention have left few options for investors to park their money. Consider that high investment grade bond yields dipped below 2% for the first time ever yesterday and that US 10-year Treasuries are yielding 0.6%, which when subtracting inflation, will leave investors with a negative return of 0.9%. That is a huge disruption to how markets function in normal times, but policymakers on the fiscal and monetary side are obliged to take these steps to prevent the economy from collapsing, even though they know their measures are creating bubbles in several asset classes.
Gold continues to be a safer bet than chasing overvalued stocks. With yields expected to remain low for a long time, inflation projections likely to head higher in the months to come and geopolitical tensions on the rise, some great ingredients are present for the precious metal to continue attracting inflows. Only $50 away from the all time high, it is only a matter of short time for the yellow metal to see a new record.
Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.
Hole TW20-001 showed two massive silver intercepts. The highest grade was the 2,198 g/t Ag over 3.04 meters.
Another layer that was the actual target of the drill hole reported 29 meters of 965 g/t Ag where it intersected the Victor silver vein.
No wonder the shares were up 102% on the day.
The company has about 20 million warrants outstanding with an average exercise price of $0.25 and some warrants can be forced so the company can count on having another $5 million brought it.
It might be time to change the name of the company from Blackrock Gold to Blackrock Silver because they just brought the Tonopah silver district back to life in a bigly way.
Blackrock is an advertiser. I have participated in several private placements so naturally I am biased. Their website is pretty good and presentation excellent.
Bob Moriarty founded 321gold.com, with his late wife, Barbara Moriarty, more than 16 years ago. They later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on current events affecting both sectors. Previously, Moriarty was a Marine F-4B and O-1 pilot with more than 832 missions in Vietnam. He holds 14 international aviation records.
Disclosure: 1) Bob Moriarty: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Blackrock Gold. Blackrock Gold is an advertiser on 321 Gold. I determined which companies would be included in this article based on my research and understanding of the sector. 2) The following companies mentioned are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. 3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy. 4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports. 5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
Given the current uncertainties and recent market moves, money manager Adrian Day offers some thoughts on the macroeconomic environment.
Global stock markets zooming ahead amid historic unemployment and economic contraction is surreal. Half of the U.S. has been locked down, with economies virtually shut, a second virus wave appears underway and yet the stock market is almost back to February’s all-time highs.
And this is not only in the U.S.; stock markets have rallied strongly around the world. We know that central bank money creation is the primary cause, but this dichotomy cannot continue indefinitely, at least without a meaningful correction. Meanwhile, goldfor sounder reasons than stockshas outperformed and, notwithstanding anticipated volatility, will, we think, continue to do so.
The economic outlook is uncertain
The keyword for the economic outlook is uncertainty. The economy cannot resume the level of January after months of closures, not in anything like the near term. Some sectors will do well, but others will be very slow to recoveroffice space, for example, or malls. Many small businesses, such as restaurants, will try to do the job with fewer people.
Real unemployment is probably higher than the headline numbers suggest, as furloughed workers are counted as “employed.” And it will get worse as restrictions from layoffs in the government payroll protection loans end. There’s uncertainty about a second wave of the virus and potentially resumed restrictions on businesses. Already, over half of the U.S. population is seeing announced reopenings on hold or reversed.
There is as much uncertainty on the supply side of the equation as the demand. Both will shrink, which is why I do not think we shall see deep and sustained deflation as much as a shrinking economy, with the possibility of inflation later.
Fed policy will destroy the capitalist economy and more
One cannot discuss the economic outlook without discussing the Federal Reserve and other central banks. The dramatic decline in short-term interest rates; the huge explosion in the Fed’s balance sheet, moving from $3.8 trillion to $7.1 trillion over the past year; and the moves by the Fed in rapid succession to buying investment-grade bond funds, then junk bond funds, then individual bonds, raise the question of what comes next. Are negative rates ahead on the next downturn? Where does QE (quantitative easing) Infinity take us? And is the Fed going to start buying equities next? And then we shall start to see selective “debt jubilees,” with the government forcing different lenders to forgive certain types of debt.
The Federal Reserve is buying bonds of companies such as Coca Cola, Apple and Berkshire Hathaway. Why does the government need to lower Warren Buffett’s cost of capital? And they are buying bonds of some foreign companies, including Daimler. Why? This unprecedentedand illegal, by the waymove by an arm of the government into the private financial markets is not receiving sufficient attention, in my view. It is the beginning of a very slippery and dangerous slope indeed.
More and more credit needed to sustain the boom
As with the drug addict who needs ongoing and increased injections to keep the high going, so too with a market dependent on easy money. The longer this continues the more devastating will be the consequences. Fed apologists will say the epidemic was unforeseen and they had to respond. But the truth is that the Fed was already boosting credit recklessly when Corona was just a Mexican beer. From September to February, Fed credit was growing at the fastest rate ever. We would have reached the current state eventually. When thinking of the Fed, one is put in mind of nothing as much as the saying, “When you are a hammer, everything looks like a nail.”
Each Fed easing, never cut back in the good times, leads to the next crisis. The housing bubble was fueled by the easy money of the early 2000s, just as surely as the easy money policy following the credit crisisand the failure to pull back after the recoveryled to the bubble in bonds and equities that greeted the start of the year. It was a bubble in search of a pin, and had the virus not come to these shores, there surely would have been another crisis and the Fed would surely have reacted similarly.
And if the Fed was unable (or unwilling) to return to normal after the dot-com bust, and despite pledges as early as 2014 to “return to normal,” pitifully unable to do anything like that after QE1, 2 and 3, how can we possibly think they will do so after QE Infinity, and after buying bond funds and junk bonds, without causing massive distortions if they tried?
MMT fuels unrest and leads to chaos
All of this has dramatic effects not only on the economy and investments, but on society itself. It will lead to reduced economic activity and eventual inflation; further erosion of the value of the dollar and destruction of savings; a further explosion in debt. More and more the economy will be dependent on government spending, and individuals on government transfers. Monetary policy will distort prices, and therefore distort asset allocation, lead to excess risk taking and further debt. It increases government power, and with it the tendency to abuse that power, and reduces individual freedoms.
And it will, as it has in the decade after the credit crisis, further exacerbate the wealth gap, leaving behind a growing underclass and destroying the middle class, leading to protest, radicalized politics and social unrest. “Modern Monetary Theory”not modern, not purely monetary, and not much of a theorywhich is now firmly ensconced as government and Fed policy, leads ultimately to social division, violence and chaos. In extreme cases, it ends in wareither a war of aggression, or (by so weakening a society) by invasion, or (by so dividing a society) by civil war. Extreme debasement of the currency always, and everywhere throughout history, has done so, from the last Roman emperors, to the Jin Dynasty, the Stuart Kings and the aftermath of the Weimar Republic.
Reduced economic activity everywhere
The U.S. is not alone. Around the world, economies have experienced reduced economic activity on the different restrictive measures introduced. East Asia generally has fared better than the rest of the world. In Europe, the impact of the virus has varied widely among countries; Europe has the weakest banking sector of any major region while the single-currency Eurozone reduces flexibility. In Latin America, where different countries have their own problems, the virus has been particularly virulent.
In most countries, governments have responded with aggressive monetary and fiscal stimulus. Programs differ, but everywhere governments have introduced measures that are extreme by that country’s standards.
Why are stocks ignoring the economic damage?
The market (per S&P) had the fastest 30% drop in history, followed by the strongest 50-day move ever, back very close to all-time highs. The dichotomy between a contracting economywith high unemployment and business closingsand the zooming stock markets around the world is stark. The reasons are clear:
With interest rates so low around the world, traditional places to put money for safety and income, such as bank CDs and bonds, do not look attractive; stocks benefit.
Some are looking ahead and see a recovering economy. They think the worst is behind us. Stocks are forward looking.
And most importantly, when central banks create excess liquidity (by definition, liquidity in excess of the requirements of the economy) that money must go somewhere; there is excess liquidity beyond the wildest dreams of Greenspan and Bernanke. It has gone largely into equities.
Arguing against higher stock prices are two simple related issues. We will see weak economic news for the second quarter, and the economy, particularly employment, may not recover to where it was at the start of the year any time soon.
And stock market valuations are high. They were already high in February, but, despite reduced analysts’ expectations, the U.S. market (per S&P) is selling at 26 times forward earnings. That would be a high number in the strongest of economies, but now, with sharp declines likely to be reported in coming weeks, with sluggishness for the next several months and with a great deal of uncertainty, that number is extreme.
The market decline we saw in March, though rapid, is mild compared with declines in periods of economic contraction in the past. And even at the March lows, the market was by no means cheap. It is possible that central bank liquidity trumps all other considerations. That may be true over the medium term. But it is almost inconceivable to think that the decline we saw in mid-March is all we are going to experience.
We agree with Mohamed El-Erian, astute chief economist for Allianz, who says, referring to central bank money printing, “I don’t feel comfortable investing on that basis.”
Near-term volatility expected
The truth is that the market has been very dependent on Fed stimulus for years now, both expecting and demanding it. Each attempt, however timid, at tightening has been met by a market hissy fit and more stimulus. In the near term, second-quarter corporate earnings season, coming soon to a theater near you, could produce some shocks and provoke a sell-off in stocks. At minimum, we expect individual stocks to be hit hard, and we anticipate volatility over this period.
And further out, we would not be surprised to see further, more protracted declines to new lows, perhaps after a year or more. This is not an unusual pattern after very sharp short-term rallies, as experienced most notably following the 1929 crash.
Resources have been hurt by shutdowns
Not surprisingly, most resources took it on the chin from the contraction in economic activity following the lockdowns and restrictions. Oil was the most hard hit, as demand was slashed amid a glut in production. Copper, “the metal with a PhD in economics,” has not been as weak as one might have thought looking only at the economy. Prices did drop to their lowest level in three years, but for the year to date are down only 3%. The main reason has been the significant supply interruptions, particularly from Chile.
Gold, however, is a different story. Completing a seventh consecutive quarterly gain, concluding with the best quarter in four years, gold is above $1,800 for the first time since 2012.
Gold is undervaluedrelative to the money supply, and relative to financial assetsand it is underowned. Given that gold is a very small market relative to global stocks and bonds, even a small move by investors into gold will have a significant effect on the price. That is what we are beginning to see now, with emphasis on “beginning.” As more and more investors, small individual investors and large institutions alike, decide to put a part of their assets into gold, the price will move up significantly.
Gold stocks are still cheap; corrections are to be bought
As gold is undervalued, gold shares are undervalued against gold itself. And, despite the recent strong rally, they remain in the lowest 25 percentile in terms of price and valuations. As gold moves up, especially in an environment of low oil prices and generally low currencies (the two largest cost inputs in a mining operation), much of that increase flows to the bottom line. Mining companies, with a newfound discipline and a more favorable environment, are generating free cash flow for the first time in many, many years.
We remain somewhat concerned about the possibility of a pullback in the price of gold. I do not anticipate that such a correction would be particularly deep or long-lasting, but a pullback in gold itself would see meaningful corrections in the mining stocks, particularly after such strong short-term appreciation.
Will gold stocks fall if the broad market does?
Certainly, if we see a broad stock market decline in coming weeks, the gold stocks could initially fall with the market. Generally, gold stocks have been more vulnerable when the following conditions are present: the market drops sharply in a short period of time; there is a liquidity panic; gold drops; and the stocks are expensive entering the correction.
Generally, gold stocks have been less vulnerable when the broad market decline is slow and protracted; when it is more selective; when gold does not decline; and when gold stocks are not overvalued.
Based on those criteria, we may see a relatively short and shallow pullback, but it will be neither a crash nor the start of a long period of lower prices. Our list of “Current Recommendations” already emphasizes gold and silver stocks, but we would use any near-term pullback to add to positions.
Buy now? Sell now? It all depends
A newsletter provides one-size-fits-all recommendations: “buy this”; “sell this”. (We try to differentiate by saying X is appropriate for conservative investors, Z for speculators.) But money management is not like that, whether you have an outside manager or are doing it yourself. One investor might say he has sufficient exposure to gold and silver even if there never is the opportunity to buy any more, whereas another investor, new to the sector, should step up now and at least take initial positions.
Buying this week
This week we are buying very little. For investors who do not own, we would buy Lara Exploration Ltd. (LRA:TSX.V) (0.76), which has corrected after a very strong move; and Kingsmen Creatives Ltd. (KMEN:SI) (0.205), which remains inexpensive. Some of the stocks on our list are expensive and ahead of themselves, such as Franco-Nevada Corp. (FNV:TSX; FNV:NYSE), but we are not going to try to be clever and trade our position. An investor, however, will take many factors into consideration: the allocation to any single stock, whether it is held in a tax-exempt account (if he has a lot of tax losses) and so on.
Originally posted on July 19, 2020.
Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is “Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks.”
Disclosure: 1) Adrian Day: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Lara Exploration, Kingsmen Creatives, Franco-Nevada. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: All. I determined which companies would be included in this article based on my research and understanding of the sector. 2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security. 3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy. 4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports. 5) From time to time, Streetwise Reports and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Lara Exploration and Franco-Nevada, companies mentioned in this article.
Our research team believes Crude Oil and Energy, in general, has stalled near major resistance and maybe setting up a big downside move as the COVID-19 virus continues to roil regional and global economies.
The recent news that the COVID-19 virus cases have skyrocketed suggests further economic shutdowns may push oil prices below $35 ppb over the next few weeks and months. Our researchers believe Oil has already set up a resistance level near $42 and will begin to move lower as concerns about the economic recovery transition through expectations related to oil demand going forward. We believe the renewed global economic demand for oil will present a very real possibility that oil could collapse below $35 ppb over the next 30 days.
We believe this pending downside move in Crude Oil will set up a great trade opportunity in ERY, the Direxion Bear Energy 2x ETF. At this point in time, we are just waiting for the technical confirmation of this trade trigger. Once we receive confirmation from our price modeling systems, we believe ERY may rally 20% to 30% or more from current levels.
Our research team believes Crude Oil’s inability to rally above $42 recently suggests strong resistance exists near the $42 level. There could be a short squeeze in price where oil pops to $44-45 and then reverses quickly below $41, which would be a great sell signal for falling oil.
We believe Q3 will present a very real opportunity for oil to fall below $35 ppb over the next few weeks. Possibly moving much lower – below $30 ppb. Once this move confirms, we’ll have the opportunity to jump into the ERY trade where we may attempt to capture 20% or more on a quick technical trade.
Our proprietary Fibonacci Price Modeling system is suggesting an initial upside price target for ERY near $68. This suggests a potential 35% upside price move in ERY is Crude Oil Collapses as we expect. This presents an excellent trading opportunity for skilled technical traders.
As we wait for Crude Oil to breakdown, traders should watch the GAP below $48 as a potential deep price support level in ERY. The upside potential profits for this trade is still rather substantial. We just need to wait for the proper technical confirmation for this setup because news or any geopolitical events could dramatically change expectations for Crude oil.
Get our Active ETF Swing Trade Signals or if you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Passive Long-Term ETF Investing Signals which we are about to issue a new signal for subscribers.
Chris Vermeulen Chief Market Strategies Founder of Technical Traders Ltd.
NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research. It is provided for educational purposes only. Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed.
