By Gordon Scott, CMT

Monday, September 2, 2019

1. Gold is the Market's Favorite Hedge Now but Gold Mining Stocks are Better

2. The Gold Miner that Rose 300% Last Year

3. Last Year's IPO that Nearly Went Under but is Now Rebounding

Market Moves

What a difference one year can make in the markets. This time last year Netflix, Amazon and many of the other stocks in the Nasdaq 100 were making new all time highs each day. Meanwhile the price of gold hovered around $1200 an ounce, about midway into a trading range it had been in for five years. 

Fast forward to the current Labor Day break in the market action, and things look much different. Gold has risen nearly 30% over the summer, while stocks have experienced a year with more volatility than any in the past decade. Some stocks have tanked badly, while others have risen dramatically. 

Right now investors seem to be settling down from a near state of panic regarding the U.S.-China trade war, however, the action there is far from over. Investors suspect that President Trump and Chairman Xi will yet have an impact on markets before the month is out.

Consequently investors have been moving some of their money into hedge investments, that is assets they think will hold or increase their value if stocks decrease in price. Bonds, gold, silver, palladium and platinum have all risen in price as trade war tensions have increased (see chart below). It may be true that the trade war will end quietly and markets will continue to rise mildly over the months to come. But if they do not, then investors need to consider these hedge investments more carefully. 

One thing to consider is that it is all but certain the price of gold will rise if trade-war fears continue to increase. However, if the price of gold increases some, shouldn't the value of Gold mining stocks increase even more? Are gold miner stocks an asset type that investors should also be considering as a hedge? As the chart below shows, it certainly wouldn't hurt. These stocks have outperformed all other hedges over the summer.

The Gold Miner that Rose 300% Last Year

Among gold mining companies' shares, some of them have doubled or even tripled since the last Labor Day, with most of that move coming in just the past three months. Such stocks show relative strength compared to others for the most recent three months and they will likely continue that strength for the next three months unless trade relations normalize their rhetoric.

One company, Anglogold Ashanti (AU), a South African based gold miner, has outperformed most other gold mining stocks, having increased by triple from around $7 dollars a share this time last year. This level of performance is unlikely to repeat, however if the price of gold were to rise by 20 percent more in the coming months, AU shares would likely rise much more than that.  

Read more:

Big Money Selling Is Increasing

Markets Become Quiet Place as Investors Tiptoe to Safety

Get Ready for a Volatile Fourth Quarter

Will the Snapchat Ghost be Resurrected?

Investing in initial public offerings (IPOs) are a risky business. While some of these new stock offerings play out better than others, most will agree that the Snapchat (SNAP) IPO in March of last year was perhaps one of the worst outcomes in recent memory among high-profile IPOs. This stock was nearly left for dead.

The stock fell nearly 85% from its initial opening price to its eventual lows last December. Since then however, the stock has rallied nearly 300% and has reached a level similar to where it was a year ago. The big question is whether such a stock will be able to maintain its recent rise as the markets unfold throughout the trade-and-tweet-tarrif-talk war.

The Bottom Line

U.S. stocks have undergone a massive shift since the previous labor day. Investors are hoping that they can make individual trades work by using hedges on at least some of them. Going forward, those hedges that have done well in the past few months are likely to continue to do well in the coming quarter of the year.