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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4 réflexions au sujet de « Volatile Markets, prices out of the Braket »

  • 15 mars 2020 à 19 h 38 min

    Bonjour Olivier
    Merci pour cet article de qualité. Pour ma part je partage votre analyse depuis des années à un aspect prés le timing, vous pourrez retrouver mes commentaires avant le éclatement de cette crise, lorsque les actions plongent toutes plongent même si finalement le cours de l’or évolue peu et celui-ci qui sera compensé par la baisse du pétrole dont les mines sont de gris consommateur, encore un peu de patience, il faut maintenant regarder comment le corana va evoluer aux US

  • 15 mars 2020 à 23 h 28 min

    Bonjour Olivier
    Je pense, aussi, que l’or va monter fortement.
    Je viens de jeter un oeil sur BullionVault. En général le cours de l’or sur BV ne bouge pas le WE, et, conserve le cours du vendredi soir.
    Il y a qques minutes il est monté à 1409€. Il redescend à 1390


    Il prend de l’élan pour demain ??

  • 17 mars 2020 à 12 h 02 min

    ben non !

  • 19 mars 2020 à 20 h 23 min

    Et si, malgré les impressions massives et hors norme de monnaie par les BC, on se trouvait à l’aube d’une déflation monstre ?
    Tous les manuels d’économies (dès le niveau collège) annoncent une inflation galopante dans le cas d’une économie saine et prospère ou dans le cas d’injection massive de monnaie par les BC ?
    Pourquoi l’issue ne serait elle pas différente dans notre contexte particulier ?
    Déflation et désendettement !

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