Hey Zest,
I wrote a post about investing in Gold companies a week or so ago and why I believe major and near-term producers will be the only real Gold companies to benefit in the current market.
https://hotcopper.com.au/posts/36247737/single
I'm not confident Gold specs will see much of a rise in the foreseeable future based on the current market conditions and where it's likely to go.
Although once the correction/crash is over I believe Gold specs (and Uranium) will be the next commodity sector to be in.
At present there seems to be a lot more data suggesting that the markets are going to keep declining (happy to be shown otherwise)
This is why I believe Gold producers will be seen as one of the most favourable investment choices.
Global growth declining
The IMF have cut their forecasts for world growth, citing US - Sino trade wars as a major contributor going forward.
A slow down of global growth will have an major impact on profits for the majority companies around the world.
As more corporate profits are downgraded share prices and markets will follow.
A decline in global growth and markets should be very bullish for Gold, (especially producers.)
As more and more investors will come to realize that their high P/E stocks aren't going to go higher.
They will then be looking for safer and cash flow positive investments (like Gold) to put their cash in.
A slower bear market would probably be the best outcome for Gold as it gives investors more time to react to the changing trend without going full-retard and just dumping all of their stocks at once.
At present there doesn't seem to be any major "panic" in the markets, although investors definitely seems a little on edge and overly cautious to commit..
This can be seen by the
market overreactions to any new major news event.
Additional trade tariffs
Last night Trump announced that he will bring forward and add the remaining $250 billion of trade tariffs on China if talks fail at the G20 meetings at the end of November.
I believe if the new trade tariffs are imposed, we would see a major downward move on global markets as this
will cement the view that global growth isn't going to rise in the foreseeable future.
Possible scenarios,
On November 6th we have the mid-term elections,
- If Republicans win IMO it will boost markets but only temporarily from the consensus view that Trump's policies are favourable to markets.
BUT, I believe this will ultimately be far worse off for markets as Trump will think he is in a far stronger position within his country and his trade tariffs view, so he may not be willing compromise on any of China's concessions.
The opposite is true if Democrats win.
IMO we would probably see a further market sell down, although it may help in the near term as Trump may feel he is in a weaker position and may be more than willing to compromise with China...?
In the end I don't believe this will have a major overall impact as ultimately global growth and markets are declining.
Trading ideas,
Gold
Gold seems to be trading inverse to the market movements, e.g. when the markets are going down Gold is going up and vice versa.
As the markets have bounced over the last 2-3 days, Gold producers have seen some profit taking take place.
There are only 5 trading days until the US mid-term elections so I believe profit taking on Gold stocks would most likely finish today/tomorrow and then start to be bought back up again in anticipation of a downward market move after the election results this coming Tuesday.
Rare Earth Elements
I wrote a bit about LYC a few weeks ago and how there could be a major price catalyst coming up with the US-Sino Trade Wars,
https://hotcopper.com.au/posts/36023755/single
"Rare Earths could be set for a massive price spike if the US-China Trade Wars continue.
China produces 80-90% of the worlds Rare Earths and has a solid stranglehold on the industry and the rest of the world.
If Trump keeps pushing with the trade tariffs, China could retaliate with restricting supply of Rare Earths.
This is something they've done it in the past."
Reports have come out of China saying that they will be removing 1/3 of global REE supply from the market.
This is major news for REE's and LYC as you could imagine what removing 1/3 of global Oil supply would do to the market..
The last time China restricted supply to Japan NdPr Prices spiked 1,600% in just two years!
I'm surprised the mainstream media hasn't ran harder with this story (probably because there's enough bad market news to go through)
It could also be because the Chinese understand that any big brash news announcements like this would only jeopardize trade tariff negotiations.
The Chinese completely understand the subtle art of still hurting the US without the big headlines by the US's big reliance on Rare Earth Elements for military and civilian use.
Once prices start increasing rapidly from supply cuts, Rare Earths will mostly likely become a major news story.
Then I imagine every man and his dog will be looking at LYC's as it's the only major supplier outside of China for REE.
LYC - Daily Chart
- LYC has seen strong buying over the last 4 days from a strong quarterly, reporting increased production and from China announcing they are cutting REE supplies.
- Another significant move today was the breaking above of the long downtrend line.
- Price has started filling the gap from $1.94 to $2.07 on above average volume.
At 8.6% shorts, LYC is the 20th most shorted stock on the ASX.
There is massive short squeeze that is potentially starting to happen here as well, also as more and more positives in relation to LYC are announced.
View attachment 1349159
Global growth slow down
https://www.cnbc.com/2018/10/09/wor...s-global-growth-forecasts-on-trade-fight.html
New trade tariffs
https://www.bloomberg.com/news/arti...-more-china-tariffs-if-trump-xi-meeting-fails
China slashing Rare Earth production
https://www.reuters.com/article/us-...e-earth-bazooka-at-trade-rivals-idUSKCN1MZ0D8
(20min delay)
