VRA Weekly Update: VIX Warning. The Australian Gold Rush. Keep Buying Gold, Silver and Miners.
/Good Thursday morning all. Another set of new ATH’s in S&P 500 and Nasdaq yesterday while the Dow jumped 454 points (+1.6%), putting it just 468 points from hitting its own ATH. And the internals finally improved yesterday…after two weeks of “blah” readings. Good to see.
But there was a fly in the ointment; we had a “first” take place yesterday as well…not really the kind of first we want to see. With thanks to the Bear Traps Report (below) we see that the VIX (fear index) hit the highest level ever, when the S&P 500 has also closed at an ATH.
In short, even as the markets have been soaring, the big money has been snapping up volatility plays as a hedge against a potential sharp reversal in equities. In just the last 6 trading sessions the VIX is up 24%.
As we’ve been covering here (and why we recently covered our short position in lev vol ETF, UVXY), last month the VIX hit extreme oversold on steroids, meaning that a rise in volatility was expected. That move higher in volatility is now upon us. UVXY is up 31% in the past 6 sessions.
Nasdaq futures are -140 as I write. With employment data out tomorrow, we may be in for a bumpy ride. Finally on volatility, there’s this; we’re entering the two most volatile months for the stock market. September is known for wild swings while October is known as “crash month”.
VRA Bottom line: our markets are red-lining overbought. With the VIX sending messages of increased volatility we would not aggressively add to broad market positions here. The VRA Portfolio should, by and large, be immune to most broad market weakness (lower beta holdings).
And remember this most important repeating pattern; it’s hard for the Fed to announce new QE (and they have much more they want to do) with the markets hitting ATH’s. The Fed (and Treasury) need bad news and downside action in the markets to take additional action. To flood the economy with new fiscal and monetary stimulus. We think this is a most important point to keep in mind. And it’s why we will soon introduce you to our new buy rec, a big cap VRA 10 bagger in the 3D printing space. But first, we want to see these OB conditions work themselves off. In advance of fresh QE and stimulus.
THE AUSTRALIAN GOLD RUSH THAT NEVER ENDED
Interesting read on gold mining (and the global gold rush) in Australia. Think of VRA 10 Baggers as you read the piece.
https://asia.nikkei.com/Life-Arts/Life/The-Australian-gold-rush-that-never-ended
“Today, Australia has the world’s largest economically viable gold resources, and some of the world’s biggest mines, such as Boddington and Fimiston (also known as the Kalgoorlie Super Pit), where annual output runs into the millions of grams. It is also on track to displace China as the world’s biggest gold exporter in 2021. The Australian government’s latest gold production forecast for the fiscal year to June 30, 2021, is 381 tons, with exports likely to reach AU$32 billion in value.
However, gold is clearly back in vogue among investors, in part because the economic distress caused by the COVID-19 pandemic has made the future prices of goods and services hard to predict. China and Russia are recent big official buyers, though the U.S. Federal Reserve had the biggest holding, at 8,134 tons, as of July 31. Germany ranked second with 3,367 tons, while China’s official reserves stood at 1,948 tons, ranking it sixth behind Italy, France and Russia. While India’s central bank is well down the list with about 650 tons, the World Gold Council, a London-based nonprofit association of leading gold producers, thinks Indian households may have up to 25,000 tons of gold stored at home.
The council expects gold demand in 2021 to rise to 3,789 tons. Almost half will likely go to the jewelry trade, which is dominated by India and China, while coins and bars will account for 20% and central bank reserves for 15%. The remainder will be split between exchange-traded funds and commercial use, primarily in the electronics, industrial, dental and medical sectors.”
Finally for this morning, a look at the Barrons Gold Mining Index to gold (back to 1939) shows us just how cheap the miners are today. This bull market has barely begin.
Until next time, thanks again for reading…
Kip
Since 2014 the VRA Portfolio has net profits of more than 2300% and we have beaten the S&P 500 in 15/17 years.
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