James DiGeorgia: As the possibility of a federal-government shutdown evolved into a strong probability that resulted in a lot of hand-wringing today, the volatility kept even some of the most-seasoned traders on the sidelines.
Government shutdowns are nothing new. And history suggests, when those take place, that a correction of roughly 7.2% is standard to expect in a bull market.
If markets do drop from here, be careful on the short side — because the downside could be short-lived.
That’s why recently I recommended that my readers, across a couple different services, grab gains in some of their short-term put option trades in names like Intrepid Potash (IPI), the U.S. Oil Fund (NYSEARCA:USO) and the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) (for up to 75%, 20.48% and 38.3%, respectively).
And now that we’re here at the pivotal October date, you may be wondering, “What next?”
In government-inspired market pullbacks, we’ve seen gold shine and oil slip, depending on whatever geopolitical situation is in play.
Long-term gold bulls may suggest that it’s always a good time to add gold. And I favor owning bullion that you have access to at all times.
However, there’s one gold investment that I wouldn’t touch with someone else’s 10-foot pole right now, and that’s junior gold miners.
Here’s why …
Junior Miners Can Grow Quickly, or Not at All
Now, you may ask, “But James, you run a service called Junior Resource Millionaire! How can you say you won’t invest in the junior miners?”
Let me clarify that I love junior resource plays because of their upside potential. And even if gold springboards from here, investing in miners isn’t the strategy I prefer to use in the near term.
Of course, I have some rules that I never violate — i.e., no penny stocks, the stock must be “undervalued” rather than “undiscovered,” and the company must focus on building shareholder value by growing its resource base … or doing everything it can to protect it.
Unfortunately, right now, I’m not seeing my strict criteria being met across the board. But I am seeing …
‘The Worst Wave of Failure in Decades’
For example, South Africa’s Blyvooruitzicht Gold Mining Company survived 70 years of commodity booms and busts. However, the streak ended when “Blyvoor” went bankrupt last month.
The combination of lower metals prices and higher production costs left 1,700 workers unemployed. Majority owner Village Main Reef Ltd. had promised to breathe new life into the company. Instead, its investment disappeared.
Blyvoor isn’t unique. Gold, copper and silver mining companies are going bust at a rapid rate. Others stopped mining activity and now live in a kind of corporate hibernation. Many are even returning land options to avoid royalty fees … anything to cut expenses to the bone and conserve cash just to survive!
Wall Street’s best-informed analysts touted some of these miners back when gold was $1,800 and silver was $35. Few predicted this wave of failure — the worst in decades.
Metals prices of all kinds — ranging from gold to copper and everything in between — fell so sharply over the last year, there’s just no way smaller firms can survive.