Oleksii Liskonih/iStock via Getty Images
The German stock market has gone parabolic in an exceptionally strong move, after meandering over the summer months with sub-par economic releases due to the admission that Germany was in a “technical recession.”
The surface reason for this division is that the vast majority of German earnings are not driven by the domestic economy but by their multinational operations, so if the German economy is in a mild recession, the German stock market can still make an all-time high, as it did in the summer, and recently.
The German DAX market index closed Friday at yet another all-time high, up 14.5% since late October:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Still, a major index like the DAX trading at an RSI of 83.40 is rather extreme, so a 1-3 day sharp selloff can come any day, but expecting that it would come soon could cost traders dearly, as in this case it is the equivalent of standing in front of a runaway freight train. So, then, why is the DAX so strong now?
There is credible reporting from Seymour Hersh, the Pulitzer Prize-winning journalist, that the general in command of the Ukrainian armed forces is negotiating directly with the general in command of the Russian armed forces, circumventing Ukraine’s President.
While the odds are very high that the Russian general is coordinating everything with Russia’s president Putin, Ukraine’s president doesn’t have the same grip on power.
That would mean the Ukrainian generals do not see a possibility of resolving the obvious stalemate and are cutting their losses. Losses on both sides of the conflict have been substantial.
In other words, the DAX index could be sensing the end of the Ukrainian war, which would be a big deal for Germany and all of Europe, due to their big trade relationship with Russia, particularly when it comes to energy and other commodities.
European industry has been hurt badly by this war. Although it would be difficult to imagine things getting back to the way they were before the war, ending it would take away the fear of escalation and further damage to the European economy, hence we see a surging DAX Index.
Gold’s Pullback is a Buying Opportunity
Recently, gold made an all-time high above $2,150, and then it pulled back sharply. A lot of investors have wondered why gold bullion did not earlier react to rising inflation, but it is perking up now, when inflation has started to fall.
It is because of rising interest rates and a rising dollar. I think gold bullion sees the end of the Fed rate hiking cycle and the top in long-term yields and, as a consequence, sees a top in the dollar.
The correction over the past week provides a new buying opportunity as I believe the rally will resume.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Keep in mind that there is a very big difference between buying gold, gold coins and shares of gold mining companies.
Gold bullion has much tighter bid/ask spreads, whereas some gold coins have notoriously large bid/ask spreads. Because of that feature, gold bullion is the superior hard asset category.
Buying a gold ETF is not the same as buying gold bullion, as an ETF isn’t like holding gold in your hands or in a vault, no matter what the written guarantees say.
Buying shares of gold mining companies is not the same either, as those are operating companies that can fail. A gold bar in your hands cannot do that.
Over the past 20 years, gold mining companies have notoriously lagged behind the rallies in gold bullion, as they have seen surging mining costs and therefore have seen overall pressure on profit margins.
In a bigger move for gold bullion, though, where costs don’t surge, that under-performance can reverse and even become out-performance, but we have not reached that point yet.
All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.
Disclaimer: Please click here for important disclosures located in the “About” section of the Navellier & Associates profile that accompany this article.
Disclosure: *Navellier may hold securities in one or more investment strategies offered to its clients.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
