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Market mayhem shows gold is the only game
Gold is the only game
The BREXIT has brought about one certainty – more uncertainty. And regardless of how the exit actually pans out, you can be sure that every little question, every political hesitation will be seized to create more.
The reason is that fear causes panic, and if someone can reasonably predict that panic, they can make money from it.
This situation will be with us for the foreseeable future, as it bounces from country to country in Europe and spreads across the rest of the world.
Events that start more market turmoil will include each suggestion that an EU member is seeking reform for itself, or the possibility of its own exit vote; any progress in the UK for Northern Ireland or Scotland to break ranks; any suggestion that EU exits talks have stalled or are not positive – for either side.
No doubt at some stage certain sectors – perhaps banks and builders – will appear to be so attractive that you can no longer ignore them. Be prepared for a rocky ride, but be prepared to be contrarian.
Start with gold. I shall resist the temptation to say I told you so, because I had not anticipated BREXIT as a reality. But the result is the same, with prices for gold bullion and gold mining shares hitting levels not seen since 2013.
After a big price rise on Aftermath Friday is there still time to get aboard? I think yes is the answer. The chart suggests that gold has two previous levels of resistance to overcome, both inside a further 7.5% increase – not unlikely and actually probable in the current environment.
The June 2016 edition of Gold Demand Trends from the World Gold Council revealed that in 2016 Q1 gold ETFs saw a 21% cash inflow increase on the year before, reflecting global anxiety well ahead of and in addition to Britain’s EU decision. The 364 tonnes added represents the second largest growth quarter on record.
ETFs are the perfect easy in/easy out way to get gold into your portfolio. The SPDR Gold Trust ETF – GLD – price is over $125, with resistance at $129.21 and $133.69, about a 10% leap. It’s a good solid performance, but it’s not one-way traffic. Profit taking – who wouldn’t after 4 years of waiting – left the improving price trend faltering for a while in April, but BREXIT fears kicked it back into play again in June.
Gold is the only game in town
Gold ETFs – either physical or synthetic, where no actual gold is held – are easy to buy. There are several listed in London, but it is just as easy to buy the bigger US funds where liquidity is assured – there are only 7 sovereign nations that have more gold than the US ETFs.
The chart describes the progress of the GLD price, were the pattern has played out as I described in The IRS Report last October, but now has more potential upside. Now having passed the January 2015 highpoint, a bounce from $124 would be very positive. I would anticipate highs of $143- $150, last seen as resistance in April 2013. The lowest you might expect the GLD ETF to reach is now $120, or the line created by the 50 day moving average.
This translates into an actual gold price range of $1,264 to $1,550.
The gold investment most likely to balance your accounts after the rout is goldminers. The Van Eck Vectors Gold Miners Trust ETF GDX is just 5% shy of 2014 highs – nearly 250% up on the January low of $12.40.
Overall remember that the gold market today is not the relatively stable haven it used to be. It’s an alternative, but is traded much the same way as equities, and is subject to similar influences, notably now the use of margin calls by City firms as a replacement for a traditional stop loss.
But still gold is the only game in town.
Peter Marshall, July 2016
How China fixed the markets
How China fixed the markets. Last week Chinese markets fell through the floor again. The triggers included some weaker growth figures (again) and more concerns over the global economy, namely the ability of the world to buy what it makes.
It appears to have stabilised now, but why?
Back in August the authorities prevented large holders of stocks trading — primarily selling– so that the markets would not see a large dip for the lemmings to dive off behind. That control was due to lapse on Thursday, but was deferred for 3 more months.
Yet the measure they have put in place makes that look sensible. Now large traders can buy, but are not allowed to sell without giving 15 days notice.
They have also removed the circuit breaker mechanisms that were intended to stop sell-offs like we witnessed this week, that actually seemed to make matters worse.
And the People’s Bank of China (PBOC) also moved to set the exchange rate higher. A midpoint was fixed at 6.5636 per dollar.
This means that the SSE is likely to rise, but not that all is now green in the garden. It is likely that many will never know about such practise, and therefore just get back on the band wagon.
I had mentioned in my January comment on a tip for 2016 that the iShares China 25 ETF (FXI) was on my radar. Here it is, the best one way bet since Soros nailed the Bank of England.
I am looking to buy below 34 and sell either if and when it reaches 38, or for whatever gain there is in two weeks.
That is how China fixed the markets, with the best intent, to protect its investors, and to give us a little profit and a chuckle on the way.