Gold EquitiesThe question has been raised, why do gold miners seem to suffer as much (in some cases more) as other stocks during a downturn in the general markets - especially with the PoG more or less holding firm in the $ 1800's?
Answer - concerns about margin erosion due to higher costs (mostly Fuel & labour). Also a tendancy by investors to sell winners (or anything) to raise cash during periods of margin calls, redemptions, etc.
Why I'm, sadly, looking forward to August/Sept.
- Higher Interest rates leading to reduced demand, will put pressure on asset prices including oil and other input costs.
- We will be that much closer to a FED pivot after 2 more .50 to .75 rate hikes. There is a practical upper limit to how much rates can be raised (most think a Fed funds rate between 2.75% and 3.5%). Any more after that, and its Recession time (which it may be no matter what now - but the question is how deep). Most likely we trip into a long period of Stagflation (= negative real rates = good for gold)
- Once the Fed halts rates, or indicates they may take their foot off the gas, Gold equities will reverse more quickly. History has shown that gold is the first to jump on a reversal of tightening...quicker than most other asset categories or stocks - at least they have in the past following major down markets.
Patience.
MM