Beat the Herd

Written by Gerardo Del Real
Posted February 24, 2020

More than 80,000 cases — and over 2,600 deaths — of COVID-19 (coronavirus) have been confirmed and worries about the virus becoming a global pandemic have governments around the world scrambling to come up with solutions to mitigate the economic impact of the virus.

While it appears that efforts in China are starting to bear fruit, new outbreaks in over 30 countries including Italy, the Middle East, and South Korea have spooked markets around the world.

The short-term reaction has been predictable. The volatility index is up over 25%, indices around the world are down between 3% and 5%, the 10-year Treasury yield is at its lowest since 2016, and gold is once again in the spotlight as it’s flirting with the $1,700 level.

The oil and base metals spaces have been hit hard with oil down 5%, zinc down over 3%, and aluminum down over 20%.

While I’m excited that gold is reacting as a safe haven — and doing so alongside a strong dollar — I urge you to have caution at these levels as a near-term pullback is likely unless we see gold break through the $1,706 level.

A pullback in gold is healthy and the average speculator in the resource space should continue to initiate and/or add to your favorite names in the precious metals space for one simple reason: They’re dirt cheap.

Historically, in a rising price environment, the producers move first and that has certainly been the case thus far.

A one-year chart of the NYSE ARCA GOLD BUGS INDEX (HUI) shows a 52-week low of $146 and a recent 52-week high of $260.

HUI chart 24feb20

The developers and explorers however have not responded and at the risk of sounding like a broken record, that’s the opportunity.

If you don’t want to invest in the producers and are somewhat risk averse and do not want to speculate on the explorers, the developers may offer a risk/reward scenario that should provide significant upside exposure (because of the depressed prices) and a lower risk profile as the better developers in the space have robust assets anchoring current and future valuations.

In the case of the explorers, many haven’t responded for good reason, because they are not exploring.

However, there are several examples where that is just not the case.

The precious metals bear market we just exited has left even seasoned speculators wounded and cautious. Understandably so.

It has also opened up an opportunity that I didn’t think would last once we breached $1,500 gold. Yet here we are near $1,700/oz. with a lot of cash still on the sidelines.

It won’t stay that way forever. Beat the herd.

To your wealth,

gerardo-sig

Gerardo Del Real
Editor, Junior Mining Monthly and Junior Mining Trader.

For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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