Volatility Is Up: Two Ways to Take Advantage

Written by Gerardo Del Real
Posted January 27, 2020

Volatility is back and like I told subscribers late last year, buckle up and expect it to become a permanent part of the investing and speculating landscape moving forward.

The driver right now is coronavirus.

From a health and human perspective there are now nearly 3,000 confirmed cases in China with a death toll that is now over 80. That number is expected to grow.

Here in the U.S. there are now five confirmed cases.

Experts in the U.S. and abroad say the worst is yet to come.

China’s economy is the elephant in the room and the biggest driver of global growth.

Human toll aside, coronavirus has already changed capital flows as everyone is looking for a hedge.

As of this writing, all eyes are on the global stock markets.

The Dow is down over 1.5%. Same for the S&P 500 and a similar fate for the NASDAQ. Volatility Index is up 18%.

Overseas, Japan’s Nikkei 225 dropped 2% while the German Dax lost 2.3%.

The two indicators I’m watching are the German 10-year bond, which has seen rates go from -0.15% to -0.38% and the 10-year U.S. Treasury yield, which has fallen to 1.63%.

Why watch the German and U.S. 10-years? Because of the recent correlation to gold and because for Europe, a 10-year that was recently heading towards zero was seen as a positive as total negative-yielding bonds had recently decreased.

total neg yield debt outstanding jan20

The ECB’s dilemma is a win-win for gold.

On the one hand, an increase in negative-yielding debt (kicking the can down an unsustainable path) makes gold more attractive.

On the other, rising rates are the match that will light the wick and cause the next European blowup in the financial sector.

Both options lead to higher gold prices.

The recent REPO market blowup which forced the Fed to intervene after rates rose from the 2% level to 10% was a simple case of the free market applying pressure to raise rates.

Despite gold’s performance, there is still a disconnect between the gold price and the price of the junior gold equities, which presents an opportunity.

Another opportunity that the recent volatility has presented and one that shouldn't be ignored is copper.

Copper was rallying a little over two weeks ago and seemed primed to test the $3.00/lb. level. It now looks like it’ll test the $2.60 level before it tests the $3.00 level.

30 day copper chart 27jan20

I’m making a list of my favorite copper names and adding on any significant pullbacks.

I encourage you to do the same.

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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