I’m still convinced that the bull case is wrong, that we won’t be hitting a quick V-shaped recovery after the coronavirus restrictions start to ease.
Are people going to go head straight to crowded Vegas casinos, fly to their dream vacations, fill up restaurants, and book concert venues? Perhaps over time, but not immediately. That represents a large part of the economy.
Right now stocks are at the same level where they struggled just one year ago, with the news feeds on how the tariffs would disrupt the economy. The economy is way more disrupted now than tariffs against China would have done, so why are stocks expected to continue higher? The federal reserve of course. The Fed is determined to do whatever it takes to prevent a major depression. So how do I keep my puts and my sanity with a solid bet that will act as a hedge? Two words: Gold miners.
Gold mining stocks have been on a year this past week, along with everything else, but a well-justified one. Their earnings from last quarter look simply fantastic.
How do gold miners look going forward? A slow recovery for travel and lingering telecommuting going on will crimp demand for oil – one of the biggest expenses for gold miners. They will also have their pick of the labor pool as people scramble for jobs. The incredible amount of central bank stimulus plus crazy low interest rates worldwide in response to this crisis will drive many investors to gold. Many countries are also driven to gold as a way to de-dollarize in order to reduce the risk of US tariffs. Product in demand plus a low price, I could easily imagine Barrick (GOLD) doubling to hit it’s highs in the next 2 years.
We could easily get a pullback in gold as countries needing US dollars sell gold supplies for them, but that will be temporary and the Fed has swaps in place with most central banks to prevent a run on dollars.
I bought a bunch more EQX this morning as it hasn’t jumped the same as the other miners yet. However, I’m seriously thinking of going for the gold here with Jan 2022 options – perhaps in the highest holdings of the gold miner ETF, which is Barrick and Newmont (GOLD and NEM). We’ll see … I don’t want to rush into it too fast, but it would certainly hedge my bearish bets a bit so increasing my holdings would be prudent.
In case you’re curious, my previous post talks about my particular short position including what, why, and how.