There is a good chance that the long term impact of this royal commission will be a complete dismantling of bank business models. As I pointed out yesterday, banks are already starting to put their funds management businesses up for sale. Next, the rest of the wealth management arms (including the financial planning networks) will probably go too.
US markets bounced back overnight. There was no reason in particular. Probably just that, on consideration, the previous day’s falls might have been a little excessive. Still, the market feels a little bit like the proverbial cat on a hot tin roof. That is, edgy, nervous, and ready to jump if need be. In my view, the risk of a trade war is higher than many people think.
If you want to get into an asset in a bull market instead, take a look at gold. Since bottoming in late 2015, gold has been in a bull market. It’s just that most people haven’t noticed. Early bull markets are tough to identify, in the same way that early bear markets are tough to identify.
Aussie gold stocks have outperformed strongly during the market’s recent convulsions. They are a great hedge in times of increasing economic uncertainty like we’re in now. The bull market conditions are set to continue for gold. The Aussie dollar gold price is approaching $1,750 an ounce, the highest price since mid-2016 and enough to fatten most well run gold miners’ margins.
While the US dollar index broke down through support in January this year, Gold did not follow. It still had a bit more work to do. In my view, gold’s move higher is just a matter of time. Many gold stocks have already performed strongly. If you want to profit from this potential move, you need to position yourself now.
While there is a lot of uncertainty around markets right now, a good strategy is to go for relative value. Right now, gold reflects good relative value. That is, relative to other asset classes, gold looks the least risky in terms of valuation. There are reasons to believe that gold is readying for a major breakout. If that happens, the price will move higher, very quickly.
There is clearly some FOMO going on in global stock markets right now. That is, Fear of Missing Out. Missing out on what, though? Buying stocks on high price-earnings multiples at what appears to be the end of the cycle? The caveat here is ‘appears’. No one knows where the end of the cycle is. You just have to use your common sense.
Right now talk of bitcoin is everywhere. I can appreciate some may find it tiring. The reason the conversation has merit however, has nothing to do with the surging price. At least, it shouldn’t. The price is merely a consequence of the bitcoin architecture.
The recent breakout for gold is bullish. It sets up the precious metals for higher prices longer term. But instead of buying into all the reasons why gold will go higher long term, it’s better to not even know. Ignorance is bliss.
US politics is not looking like it’s going to be a beacon of calm over the rest of the Trump presidency. And the massive US debt ceiling problem is not going away. Such volatility usually triggers more investment into safe haven assets. To my mind Gold could be the big winner in the short term.