Mechelany Advisors’ Investment Ideas are here to make our readers make profitable investments over different time-horizons. Our value oriented investment management style and research focuses on cheap companies with great and solid businesses to be held as core holdings in portfolios. We provide individual Investment ideas based on our multi-layered screening and valuation process combining structural, top-down macro, sectoral analysis, bottom-up stock selection and valuation analysis. Our Investment Ideas may be included in our Model Portfolio while some may not be included if they do not fit the global risk profile and asset allocation chosen at the time of selection.
Investment Alert
After their best month since 1996 equity markets are in frenzy buying territory.
And precious metals collapsed last week, breaking significant technical levels.
After rallying for months and generating the expected bout of excitement, the mainstay precious metal has lost its luster in favor of bitcoin. For the first time in nearly 9 months, gold has crossed below its 200-day moving average.
This ends its 10th-longest streak above its long-term average.
But we see last week’s move as a MAJOR BUYING OPPORTUNITY in the Precious Metals complex.
As our readers know, we have been calling and trading Precious metals quite successfully since 2016, riding the bull wave side 1400 in Gold and Silver prices, taking significant profits and then piling in again in March 2020 in the great collapse.
We took profits again over the summer and are buying them again now.
Last week’s breakdown below the obvious key support at $1848 in gold was a short-term negative surprise. With the breakdown of classic macro correlations, the yellow metal could not profit from a weaker USD and lower yields, and the November breakdown was effectively the consequence of the reversing summer COVID trade and a classic position washout. We had warned about the extended long positioning of investors in precious metals then.
After gold ended other streaks of at least 100 days above its 200-day, it tended to resume its uptrend. Over the next month, gold rebounded 78% of the time, with a heavily positive risk/reward ratio. Returns across all time frames were consistently positive.
Generally, with the exhaustive rally in cyclicals/value in equities, we see the current sell-off as an exhaustive and classic capitulation in gold. Together with reaching our worst-case correction target range, we see gold near to a significant trading bottom.
Despite the tactical negative surprise, we reiterate our underlying bullish view on gold, where the recent sell-off represents a big buying opportunity – multi-month cycle low – for gold/silver/platinum/gold mines for another significant rally towards new highs into H1 2021.
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