Volatile Markets, prices out of the Braket

Volatile Markets, prices out of the Braket

Last week, the US market (DOW JONES) ended with a loss of around 10% (minus 10%) on the week despite a Friday rebound of +10%.

When panic takes over the market and the investors, things you have never be able to imagine can happen. Unexpected events can also be a huge pricing surprise for unprepared products managers.

Today, I would like to mention the mining sector, which despite the”good” behavior of gold (only lost 10% from the top) went totally crazy.

Crazy pricing and moves occured

Incidentally (or not), $GDX is trading at over 7% below NAV, biggest discount on record.

If you are wondering what happened to GDX, GDXJ, NUGT, and JNUG last week. Look no further than an epic panic that it caused a breakdown in the arbitrage mechanism that is meant to price the ETFs relative to the underlying equities, which then led to a incredible mispricing in NUGT and JNUG.

What is NUGT and how it works ? https://www.investopedia.com/articles/investing/042315/how-gold-miners-bull-3x-nugt-etf-works.asp

3x leverage can cause huge damage. Look Friday – 46% (but as said above there was a mispricing !)

After hours it looks like the market is trying to re-price it correctly

Same story for the JNUG (also 3x leverage bull)

Also trying to balance the ETF price after hours….

The major point I would like to mention is the difference between the paper gold price and the physical gold price !

It looks like if you want a physical delivery it is becoming more and more difficult and also with a huge premium ! Premiums for the purchase of physical gold and silver 10-30% over spot futures prices. The physical market may be breaking free of the paper market, finally!

Next week will be really interesting, especially with all bad news from the closure of borders in Europe and a lot or restrictions due to the spread of COVID19.

The massive injections by the FED, ECB etc. can continue to lead to market craziness but do not forget. Money creation will bring a huge support to gold on the long run.

Physical gold is the only direct way to own gold. Eventually mining shares (direct holding as shareholder and final owner) is an indirect way to hold physical gold. This is not the case for mining ETF’s or gold ETF without physical gold behind and no physical delivery options.

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Gold vs Mines (english version)

After my french articles “c’est parti mes goldy”

2017: http://www.crottaz-finance.ch/blog/cest-parti-goldy-cest-reparti-goldy/

and end 2015: http://www.crottaz-finance.ch/blog/lor-et-les-mines-cest-parti-mon-goldy/

In which, I was lucky to show low points, I am coming back on gold, the mines and their linked (or not) evolution .

First of all, a graph from  This video (Out end of August, video to listen if you find technical analysis interesting).

The autor is speaking about the next gold increase, it’s only starting.

Back on today’s note

Do we have to own Gold or Mines and do have Mines a Leverage compared to Gold ?

You will find a partial answer in the following graph:

from 1983, owning Mines instead of Gold does not seem to be profitable, especially from 2008, BUT …

A come-back could happen if Gold stays steady or continues its increase (which seems to be the case) and Mines could make a multiple.

And more interesting, the following graph number 2, shows us interesting elements.

Gold beat Mines (in red) from 2008 till 2015 (remember Gold fell from 2011 till 2015) and it is only recently that Mines started to beat Gold again. (probably showing that Mines have a leverage versus Gold (in both ways)).

A more fundamental element: Production Peak seems to have occured in 2015

Conclusion: We have to be invested in Mines when gold is raising in price and the first graph “GOLD vs Mines” is pointing a huge potential for Mines today.

Happy Investing

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