Panic Selling Creates a "Golden" Opportunity

03/19/2020 5:00 am EST

Focus: COMMODITIES

Adrian Day

Chairman and CEO, Adrian Day Asset Management

No market or sector had escaped the slaughter — even gold stocks. However, the gold stocks are very undervalued and are likely to recovery first, suggests Adrian Day, editor of The Global Analyst.

Gold was sold because it was a source of liquidity in a liquidity-deprived panic. The gold stocks fell as both gold and the broad stock market fell. (It is also true in the gold market that the worst possible decision is to liquidate in the middle of a liquidity-driven panic.)

If previous liquidity panics are any guide — 2008, 2001, 1999, 1987 — gold will recover very soon as the worst of the forced liquidation passes; and the gold stocks will be the first sector to recover.

As an example, gold stocks fell with the broad market into the October 2008 lows and then started to recover. By the time the broad market had bottomed, not until March 2009, the gold stocks had more than doubled, far more.

Within a year, the gold stocks were back at all-time highs. So, it is too late to sell gold stocks as well. When they do bottom, not only will they likely be the first to move, but in the past have moved very fast off the bottom.

The new bull market in gold started well before 2020, certainly the middle of 2018 if not the end of 2015. Taking this longer view, only the run up in last several weeks has been caused by coronavirus, meaning.

Gold is reacting to monetary policy, stock market volatility and geopolitical concerns. The corona virus is only one more factor.

The gold stocks are undervalued right now. The producers are very cheap. Right now, they have the benefit of higher gold prices, and lower oil prices as well as generally lower commodity currency prices making costs lower even as gold moves up.

Most of them have better balance sheets now than did few years ago. The exploration stocks are also very cheap, but they need to be cashed up. It is difficult to raise money at a reasonable level now. In addition, the producers will tend to recover before the exploration companies do.

The panic can last a while particularly if we see further developments with the coronavirus. But given that the gold stocks can more rapidly when they turn, I see this as a time to get into the market and pick up some great buys, but to do so cautiously and methodically.

I certainly would not be selling aiming — hoping? — to buy back cheaper. You do not want to wait until it is clear the market has turned before buying. So, this is a good time to be picking up the very best companies and at the best prices as they become available.

In short, this is not a time to panic, not time—never is—to be reactive. It is too late for broad, aggressive selling, even though rallies can be sold. If it is too soon for broad aggressive buying, the best gold stocks and a few other oversold stocks can be bought.

Top buys now include Fortuna Silver (FSM) and Franco-Nevada (FNV). We also consider Osisko Gold (OR) to be a great buy as well.

Subscribe to Adrian Day's Global Analyst here…

Related Articles on COMMODITIES

Keyword Image
The Big Crude Rebound
06/03/2020 6:00 am EST

As energy markets recover OPEC + are looking to extend production cuts, reports Phil Flynn....

Keyword Image
A Top Trio of Silver Miners
06/03/2020 5:00 am EST

Gold is the traditional safe haven in volatile markets. But silver prices tend to rise even faster o...