Just as soon as retail investors thought it was safe to go back into the markets, it looks like buy-the-dip has finally stopped working – unless you’re buying the dip in precious metals, which is working out quite nicely. But if you’re holding the Dow, Nasdaq, or S&P 500 right now, the dip is only getting deeper as geopolitical turmoil holds the markets in its uncompromising grip.
If you are reluctant to turn on the TV and listen to the talking heads on CNBC to find out what is happening in the markets that is violently rattling the markets, I’ll save you the hassle and give it to you here.
We’re witnessing a reckoning in our markets that’s revealing itself in global political warfare…
It started late on Sunday as Asian markets tumbled amid fresh developments in the U.S.-China trade war: China asked state-owned companies to suspend American agricultural imports as a retaliatory move against President Trump’s announcement last week that the U.S. would impose a 10% tariff on $300 billion worth of Chinese imports.
Trump’s new round of tariffs rocked and roiled the American markets last week, with the S&P 500 and Dow falling 3%, its second-biggest weekly drop of 2019. I recall seeing Friday-night social media pundits declaring that buy-the-dip would work on Monday, as they’ve become accustomed to the Plunge Protection Team engineering a stick save every time the stock market goes down for a couple of days.
But it’s not working this time, as Monday put the stock market into the red once again in response to Asia’s overnight market decline. Compounding this is another war going on between the U.S. and China: a currency war, or at least that’s how it’s being construed by President Trump:
So now it’s a race to the bottom for the Yuan, which fell (or was pushed) below 7 to the dollar on Monday, marking an 11-year low for the Chinese currency. No one ought to be surprised if President Trump, perceiving this as a deliberate move by the Chinese to weaken their currency artificially, reacts with his own efforts to suppress the U.S. dollar.
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Meanwhile, the 10-year U.S. Treasury yield absolutely vomited to 1.75% during Monday’s trading session, proving once again what I’ve been saying for years: central banks aren’t in the business of helping retirees and investors get a decent yield they can live on. Investing in the government has never been a good idea – and as you can see, buying bonds nowadays is a low-yield, high-risk proposition.
Hard assets, on the other hand, are benefiting from the currency devaluation war, Treasury-yield suppression, and the ramp-up of international tensions. It’s a perfect storm that’s 100% gold-bullish, and while I’ve been recommending a long gold position for many months now, it’s still a pleasant surprise to wake up and see gold in the green:
Silver is also up, along with platinum and palladium; no matter which precious metals you’re holding, today is a very good day and I expect things to only get better. And if you have positions in gold and silver miners like I do, then your portfolio is most likely seeing astounding gains today, as the miners tend to magnify the gains in precious metals.
Expect continued moves in the miners…
On June 18th, I put out a piece about gold recovering and the investment community still being in denial. I profiled Barrick Gold (CAD: ABX & US: GOLD) in that email as a safer play because of the billion-dollar giant it already is, and here we are today, just a little over one month later and up 30% on this company alone. Again, aside from just owning physical gold, this is a “safer” way to expose yourself to gold and have the upside that comes from owning the miners.
Having said that, I tend to think this bull market is just starting to ramp up…
Besides, these metals and miners positions will provide a solid hedge against further international turmoil. This isn’t the first time we’ve witnessed an escalation in trade tensions, granted, but there’s a difference this time around: approximately two-thirds of the goods being tariffed in this round are consumer goods, which will result in a pronounced impact on the American economy.
Trade tensions have already pushed corporate confidence and global growth to their lowest levels in years; it wouldn’t take much at this point to send the economy into a tailspin. Regardless of whether your time horizon is short-, medium-, or long-term, every indicator is pointing to precious metals now: hold them if you’ve got them, and buy them if you don’t.
Or put in a different way, gold is starting to act like gold…
Chief Editor, CrushTheStreet.com
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