1. I don’t know about you, but I went shopping last week. Not for socks and leotards, but gold stocks, of course!
Here’s my reasoning.
The whole sector took a whack last week because the gold price took a swan dive of 7%. That came after a fairly sturdy uptrend since the ‘double bottom’ in March.
I tabled the potential for something like this to happen in The Daily Reckoning Australia back at the start of the month.
However, the 7% fall came in the US dollar contract for gold.
The Aussie dollar took a beating as well. The net result is that Australian dollar gold is still around $2,350. That remains an excellent price for any producers here.
Now, there are no guarantees gold won’t keep falling and/or the Aussie dollar start rising again and eroding this current dynamic. But I’m prepared to take the risk relative to the potential upside.
There’s a lot of free cash flow pumping through some of the gold stocks at this price level. That kind of money generally finds buying support on the market.
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Whither gold? I’m not so sure in the immediate short term. But I say higher in the longer term, at least against the USD.
The Aussie dollar is the tricky component right now.
Australia has been running consecutive current account surpluses for nearly two years. Iron ore earnings are skyrocketing.
That dynamic should pressure the Aussie dollar to the upside. But right now, it fooled us all by going to its lowest level for the year in recent trade.
That’s a tailwind for all commodity producers, not just the gold stocks. But how long will it last? Only time can tell.
For now, keep an eye on goldies like Gold Road Resources Ltd [ASX:GOR], Ramelius Resources Ltd [ASX:RRL] and Evolution Mining Ltd [ASX:EVN].
They should rally out of this funk…if my thinking is right, of course!
2. What else smells of opportunity?
Bitcoin [BTC] is also looking mighty tempting on a long time frame.
I had lunch with a couple of mates yesterday.
We posed a hypothetical question: Go back 10 years; what did you want to own? The responses were immediate: bitcoin or Amazon.
The notable part was not that those two sprung to mind, but that the entry price or volatility of both didn’t really jump out as important.
You had to buy and hold on, letting all the macro and micro concerns wash through. It’s a white-knuckle road when you’re talking serious money.
We posed a second hypothetical question: What’s more important over the next five years? Self-driving cars? Renewable energy? Biotech? The rise of crypto?
At a moment like that, you fall back to see what’s most predictable. To me, that’s the ongoing rise of cryptos.
Therefore, you deduce from that wherein the crypto space seems most secure. That’s bitcoin because it’s the most trusted network. For sure, other cryptos will outperform it over the next five years.
But whether you can find that one and have the foresight and guts to take a meaningful stake and hold it is the tricky part.
Bitcoin becomes the default fallback under this scenario.
Does this guarantee it will succeed, or that line of thinking will be right? No way.
However, we can say, or at least I think so, that as far as crypto goes then we are in the equivalent of 1997 and the internet.
That is to say, the whole thing is just beginning.
Lots of people pooh-poohed the internet at the time. Their comments look laughable now, but back then earnest people took them seriously.
We know there are two major problems with human nature when it comes to the markets. One is that we are terrible at predicting the future.
Few in 1997 could imagine the iPhone because the tech wasn’t there for it yet.
But we humans also overweigh recent events. So bitcoin has had a big drop lately. That induces fear and concern.
But bitcoin has had lots of big drops over its lifetime. It’s survived regardless. In five years, no one will even remember this price action. It will either be higher, one would think, or obsolete.
But we can assume that crypto will still be with us. Indeed, much of the economy will be tokenised and operating on blockchains in different ways.
Regards,
 |
Callum Newman,
Editor, The Daily Reckoning Australia
PS: Our publication The Daily Reckoning is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.
