On April 23rd 2020, we posted OUR NUMBER ONE INVESTMENT IDEA FOR 2020 making the case that Gold would surge in the remainder of the year and that one of the best investments to be had for the rest of the year was to Buy a leveraged ETF on GOLD MINERS. ticker NUGT US
Since then, Gold prices have risen +19 % and are testing their 2011 previous all-time high and our investment recommendation has risen from US$ 64 to US$ 110, delivering a +74 % return to investors in 3 months only.
On March 23rd 2020, in our Post titled MASSIVE LIQUIDATION OFFERS PHENOMENAL ENTRY POINT, we advised investors to BUY SILVER at US$ 12, making the case that it would stand to make a phenomenal catch-up move versus Gold and in absolute terms.
We also highlighted in our MODEL PORTFOLIO the 3x Leveraged ETF 3SIL LN as the best instrument to gain exposure to Silver @ US$ 0.832
Since then, Silver has risen 100 % and closed above US$ 24 yesterday while the 3SIL 3X leveraged ETF rose to 4.70 yesterday, where we took some profits, delivering a whopping 480 % return to investors.
So where do we stand now ?
Clearly investors have now realised that the FED’s actions and flooding of liquidity coupled with massive budgetary deficits are leading to a major crisis of condense in the US dollar and fears of a resurgence of inflation in the long term their a de-basing of the US currency.
In a milestone study published yesterday, Goldman Sachs warns of a permanent loss of its status of reserve currency for the US dollar and we have argued many times in the past that this would lead by a significant appreciation of the Chinese Yuan and of Gold.
Last week’s break above the 2011 all-time high in Gold prices is a clear positive sign and many technical analysts point to a Gold p[rice reaching 3’000 in 2021.
When it comes to Silver, the reversal of the extremes reached in the Gold to Silver ratios – see our links to the posts above – and the dearth of physical Silver, an industrial metal in strong demand for electric vehicles and Solar panels would lead to much much higher prices in the future, with an initial target at US $ 32.
We remain therefore long term positive for the long term on both metals with preference for Silver and Gold Miners over Gold itself.
In the shorter term, both metals are now clearly overbought and all the indicators of sentiment are pointing to an extremely crowded trade. Investors, central Banks and speculators are all piling in ETF’s and future contracts and that usually means that a tactical correction is normally at hand.
Moreover, we are in a crucial week in equity markets with the final results of the remaining FAMANGS that have started to roll-over and a breach of 10’300 to the downside on the Nasdaq would confirm our secular top in US equity markets and the bursting of the speculative bubble in the US tech mega-cap technology stocks.
If to does not happen this week, we may see another attempt a new highs in August before the secular top is finalised.
In both cases, a sharp sell-off in US equities will lead to a rebound in the US dollar and a temporary sell-off in precious metals as well.
As a consequence, we have started taking some profits on our strategic long Silver ETF in the past week and sold 50 % of our position yesterday at 4.70.
On the other hand, and as we highlighted in our latest Weekly Market Review dated July 26th 2020, there is also a possibility that due to the extreme gap between long positions in the future contracts and the shortage of physical Gold and Silver, all these traditional sentiment indicators become useless and the market experiences a massive short covering of the Physical market in both metals that could send prices sky-rocketing, simile but in reverse to what happened in the oil market in April 2020.
We advise investors to take some profits at current levels but stay invested to the tune of 30 % to 50 % of their desired exposure in both Silver and Gold Miners.
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