Why Gold Is Positioning for a Price Surge

Why Gold Is Positioning for a Price Surge

What a way to come back from the Easter break…

You step away from analysing global markets for a second and everything turns upside down.

As you may have seen, the US market threw a tantrum while everyone was busy eating chocolate eggs.

Over the past five trading days, both major US indices have fallen. The Dow Jones dropped 1.90% (458 points), and the S&P 500 is down 2.23% (60 points).

That puts both indices back at this year’s February lows.

For the most part, the decline is a reaction to the US-China trade war that intensified over the weekend.

China amped up its response to US President Donald Trump’s aluminium and steel tariffs. As a form of retaliation, China bumped up tariffs by up to 25% on 128 products it imports from the US, including frozen pork, some wines, as well as fruit and nuts.

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Not to be outdone, Trump confirmed he’s already investigating additional tariffs on Chinese products using his recently discovered loophole in Section 301 of the 1974 US Trade Act…

Industry rumours suggest Trump is keen to hurt the Middle Kingdom’s ‘Made in China 2025’ plan. This is China’s plan to wean itself off importing technologies made elsewhere.

Neither country has ‘officially’ declared a trade war yet. But both are acting like they are in one.

All this tit-for-tat tariff setting is stoking fears that the next big US market crash has arrived. Check out these two charts.

Dow Jones — Daily/Two-year chart

S&P 500 — Daily/Two-year chart

Source: Yahoo Finance

Like I said before, both the Dow Jones and the S&P 500 dipped back down to the February lows. Meaning that calls are coming in thick and fast from the mainstream media espousing ‘It’s a bear market! The crash is here…’ type of hyperbole.

Compounding the fear is the media trotting out the usual sort of crash stats. Just this morning The Australian reported that in the past 150 years the US stock market has, on average, crashed every 3.4 years. It then highlighted that the US market hasn’t crashed since 2009. So, which is it?

A stock market crash is considered anything more than a 20% fall from the peak to trough.

However, what if this current dip isn’t a crash in the US market but an overdue correction instead?

A major index correction is generally a 10% fall from the peak before another rally begins.

Since the January peak, both the Dow Jones and the S&P 500 in the US are down 8.3% and 8.2% respectively.

Quite frankly, until both US indices fall more than 10% from the January 2018 peak, it’s not a crash — just a correction.

Perhaps the good news here for investors is the reaction of the Aussie market. With all the drama in the US, the ASX/S&P 200 (XJO) is only down 0.3% at time of writing, and down 2.90% for the past week.

This fall takes us back to the early October 2017 low of 5,742 points. Yet after some short technical analysis this morning, I’d be very surprised to see the XJO fall below 5,650 points. Which is to say that perhaps Aussie investors aren’t as concerned about the US stock market tumble as the press would like you to think.

The good news is that not everything falls in tandem.

In times of panic, gold and gold-related stocks tend to perform well.

Less than an hour into today’s trade, major Aussie gold mining stocks are already screaming higher. Newcrest Mining Ltd [ASX:NCM] is up 2.04%, and the second largest gold producing miner, Evolution Mining Ltd [ASX:EVN], is up 2.80%. Hot on their heels are the smaller gold miners, with both Regis Resources Ltd [ASX:RRL] and St Barbara Ltd [ASX:SBM] up 1.45% and 2.50% respectively.

Ultimately, when it comes to investing, you should always avoid getting caught up in the panic as best as you can. There’s always an investing opportunity somewhere amid the fearmongering. And, historically, there’s been no better way to take advantage of market uncertainty than with gold. Details here.

Kind regards,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia