Make Volatility Your Best Friend!
After the shakeout, inevitably comes the breakout. It’s the market’s way of separating the men from the boys, the pros from the dabblers. The stock market is known for doing this on a regular basis, as is the commodities market, including gold.
When it happens, there are always excuses for the sell-off. This time, you had a menu of panic buttons to choose from: China’s Evergrande collapse, worries over the debt ceiling (an artificial crisis which the government always magically saves at the last minute), Fed taper talk, and the ever-present concern over inflation.
The only issue with real staying power – and which I’ve been warning people about long before the media started harping on about it – is inflation. The Federal Reserve had to backpedal on its “transitory” narrative as the data has proven otherwise.
And, that’s why I’ve been recommending inflation-resistant investments for so long. The Fed will find excuses not to taper off its bond-buying program, and the Evergrande crisis won’t cause a global financial reset – but the value of fiat money can only deteriorate if the government’s mass-printing currency units.
For commodities investors, the money-printing binge has been an absolute blessing. Oil just rose to a critical resistance level, and is poised to hit its highest price since 2014.
It’s not unusual for oil, which is highly sensitive to dollar weakness and is also more volatile, to move faster than other commodities and to signal gold and silver’s next move.
In this instance, oil’s quick ascent means that precious metals should play catch-up very soon. Really, gold and silver are the only commodities that haven’t joined the party yet, after a big move in oil and an even sharper rally in natural gas.
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As far as the stock market goes, I’ve been holding a selection of mining stocks because they’re not just inflation-resistant – they actually benefit from a rising inflation environment, which is conducive to higher prices in gold, silver, and the so-called base metals like copper and nickel (which too many investors tend to ignore).
I warned about losing your cool and panic-selling during September’s bout of market volatility – and sure enough, the markets came back in early October.
As predicted, stocks (assuming you choose the right ones) are proving to be a hedge against money printing. They’re also moving according to seasonal patterns, whereby stocks will typically show weakness in September but then rally into the final three months of the year.
Gold and silver also tend to perform well from October through December. For gold to trade anywhere near $1,800 now, and silver below $23, is a gift from the market that won’t last much longer.
There will be more debt ceiling deadlines and mini-crises, so take advantage of those as they’re prime buying opportunities. The switch between risk-off and risk-on is something you can leverage with a simple, rinse-and-repeat strategy of buying on weakness.
Whoever couldn’t stand the heat, already got out of the kitchen in September. Now it’s time for the pros to sweep in and buy up anti-inflation assets at terrific prices, for profits that are just too easy to pass up.
Chief Editor, CrushTheStreet.com
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