Stock market forecast August 2020
Latest update: 01-08-2020 21:04
More attention to economic figures
Last month, most stock markets moved sideways, just like the month before. There was a difference between the European and the American stock exchanges.
The European stock markets ended slightly lower in the past 2 months and the American stock markets slightly higher. The reason was the American tech stocks.
That American tech sector, or more specifically only about 7 large American tech companies, were able to keep those exchanges high because of their heavy weighting on American stock exchanges, thereby providing just enough support to European stock exchanges to prevent further declines. It is a very delicate balance.
Both the FED and the ECB are not meeting this month. However, I do not completely rule out the need for the FED to take action. I expect a shortage of money in the US sooner or later. We've seen that before in the past 2 years.
When the FED started rolling through less and less maturing bonds and at the end of last year the repo problem. Lack of money in the US financial system that forced the FED to respond quickly.
That lack of money can again become visible in the repo system. The cause will then be that American banks have to provide extra (emergency) credit to companies and consumers in combination with more and more overdue repayments of loans previously granted.
However, the main problem will be with the US government. Due to the economic problems, much less tax money comes in. With hefty support packages and a record number of unemployed, the money is flying out.
That while the US government was already in a serious budget deficit before corona. The US government therefore needs a lot of money. It will have to be picked up by issuing government bonds. The question then is whether there is enough money available to buy them all. I do not think so.
What also plays a role here is that the global economy is in a sharp dip, the yield on those US bonds has fallen sharply and the dollar is in a downward trend.
That ensures that foreign investors who previously loved those US government bonds will not be so keen on them anymore. The only solution is that the FED will increase the balance and print money.
If necessary, the dollar will fall and gold and silver will rise. Equity investors should be shocked by this need for money, but it will probably dominate as more stimulation and raise stock markets.
I think there is a good chance that this American money problem will play a role in the coming months and it can even happen this month.
Last month's results
The ETF website
There were no transactions last month. I've been waiting for a decline all month. However, stock markets continued to move sideways throughout the month and nearly all closed the month in a slightly downward trend.
However, risks such as the corona in the US, conflict US and China and poor economic data increased. I didn't like the fact that stock markets are held high by a limited number of tech companies. So no risk taken and nothing bought.
It turned out to be the right decision, otherwise most of the purchases would have been in the red now. I continue to expect a decline and will then start buying again.
The gold mine website
Average return over the 7 gold mine shares this year: + 238%
All gold mining stocks have now recovered from the corona crash and are in the plus for this year. The fact that a number of gold mines have temporarily stopped due to corona has led to considerable price pressure in the run-up to the second quarter figures.
Now that the mines are open again and quarterly figures are / will be known, the gold mine shares can start a strong recovery movement. The 2 gold prospectors are waiting for new drilling results.
The gold and silver price
The gold price broke the magical $ 1900 resistance last month. To end the month at the highest level ever. It has to do with several things. Coronavirus fear and the resurgence of the US-China conflict play a minor role.
Structurally, the extremely low interest rates on savings accounts, the low yield on bonds, the falling dollar and concerns about the large amounts of money printing. The latter will provide another very important reason for investing in gold and silver in the near future.
High inflation and risk of hyperinflation. This is not yet the case, because temporarily the economic downturn is depressing inflation. But once and for all, I expect inflation to rise sharply from the beginning of next year. The result of excessive amounts of money.
In addition, high inflation is the only way to evaporate the sky-high debt in the world. Soaring inflation will not only be a consequence of. Central banks will want it and they will do it. And so it is going to happen.
Now that my first goal ($ 1900) has been reached, I focus on the next goal with the gold price. The $ 2,700. Due to corona, interest rates will remain low for a long time and there is still a lot of money to be printed. So that $ 2700 will come. Probably next year already.
How did I get that $ 2,700? During a normal bull market, the gold price doubles. The gold price has long stood at around 1350 and therefore that $ 2700.
Without corona, $ 2700 would probably have topped this bull market. And it would have taken several years to reach that.
Because of corona, I now expect that the top of this bull market will reach $ 5000 in 3 to 4 years.
When I see how fast the gold price has already risen in recent months and how many years of low interest rates and printing more money are still ahead of us, that $ 5000 will come. Especially if inflation starts to rise sharply from next year.
Now the stragglers. Or maybe it's better to call them followers. Gold always takes the lead in every bull market. Gold is the leader and the rest follows.
What is the rest? Silver and the mining shares. The silver price rose to over $ 24 after a sharp rise last month. It has been a long time since the silver price has been so high. Yet silver is still a laggard.
Because when the gold price hit $ 1900 in 2011, the silver price was almost $ 50. Silver always follows the gold price with a delay and in the superlative. The current gold price of almost 2000 dollars therefore includes a silver price of around 55 dollars.
It will not be long before the silver price will catch up with an increasing increase. The other laggards are the mining stocks.
Despite the beautiful increases of the past month, they are nowhere near the level of 2011 when the gold price was $ 1900. In 2011, those gold and silver mine shares were about 10x higher than they are now.
Can you expect a 1000% increase based on the current gold price? No, because the costs for those mining companies are now also higher.
Still, at the current gold price, those gold mining stocks should have been a factor of 3 to 5 higher. There are 2 reasons why this is not yet the case. First, the increase in the gold price has gone very fast. Those mining stocks need more time to keep up with that.
Second, that is corona. Those mining stocks were also hit hard during the corona stock market crash earlier this year. And because of corona, a number of mines had to close temporarily, which caused uncertainty about the quarterly figures.
Those negative corona effects have put gold mining stocks behind gold. I expect that a large part of this backlog will be closed this year.
For the silver mine shares the same story, but also the effect of the silver price, which still lagged far behind in the first half of this year. Reason why those silver mining stocks can rise even faster.
The stock market forecast for this month
The question is how long those American tech stocks can keep the stock markets high. No single share will continue to rise for ever. If profit-taking takes place with these tech shares, they will also pull the entire stock market down due to the high weighting.
What goes on is of course the corona virus. The conflict between the US and China also seems to be escalating further and further. Investors will also increasingly pay attention to economic figures.
Unemployment rates in particular will play an important role. Because they say something about how many consumers can spend. Bankruptcies can also demand attention. I will keep you updated with daily updates.
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The monthly forecast for the AEX
The economic consequences of the corona crisis are becoming increasingly apparent. Investors are beginning to realize that there will be no V-shaped economic recovery.
The hope of a V-shaped recovery was the reason that investors still bought shares while stock markets were just as high as at the end of last year. At the end of last month, there was more and more doubt. However, it has not yet come to a significant decline.
The 530 remains important for the AEX. There is a lot of support and as long as the AEX remains above 530, the damage will be limited. If the AEX falls below 530, the decline will accelerate and a correction will follow. I remain of the opinion that the current economic situation and prospects include lower stock markets.