Are there better coronavirus plays than gold and silver?
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Gold and silver are, without a doubt, the best assets for weathering the storm the COVID-19 outbreak is visibly starting to unleash. Silver is both the better bargain and the one that has offered the most upside volatility in the past. Plus, silver has antimicrobial properties that could boost demand during the global pandemic that’s shaping up. But history tells us that gold will move first, and silver will follow.
I like both gold and silver—the world’s longest-serving monetary metals—as safe-haven assets in this worsening economic storm.
Please note that I said “economic” storm. I’m not an epidemiologist. And I’m not interested in philosophical debates about whether something that’s “just another flu with a scary name” should or should not have the economic impact it’s having. I’m a speculator looking at the financial trends before us.
COVID-19 is already hitting the global economy hard, and all the latest data point to this impact getting much worse before it gets better.
This and the central bank response already unleashed is extremely bullish for gold and silver—as prices this week have already shown.
And once the immediate liquidity crunch passes, gold and silver stocks can add leverage to the upside here.
But it’s fair to ask if, in saying so, I’m just a gold bug preaching to my choir.
Well, in fact, I have been looking for other ways to speculate…
First, I do want to pause and say that I’m not trying to profit from misery. I know that many people have died and the economic fallout is harming many more people.
But we can’t allow anyone try to make us feel guilty for speculating on the market trends as they develop.
We aren’t causing these trends. Simply letting them crush us along with others who don’t keep a sharp eye out for what’s coming does no one any good.
So, even though I’m not a doctor, I am watching and seeking to understand the spread of COVID-19. One thing the medical sources I’ve consulted agree upon is that this coronavirus causes pneumonia in serious cases.
The good news is that with treatment (ventilation with oxygen) almost everyone recovers. This—and China’s ability to build giant hospitals in a week—is why the death rate is so low.
The bad news is that while the death rate is low, the infectiousness of the disease is high. This comes at a time when many hospitals are already full of regular flu patients. They aren’t equipped to handle a massive increase in the number of patients who will require treatment for pneumonia—and that’s in modernized countries with plenty of hospitals.
This leads me to speculate that there will be a huge surge in demand for oxygen for hospitals.
I’m sure that if this were just a bad flu season, hospitals could just order some extra cylinders of oxygen and that would be the end of it. But if there are suddenly thousands and thousands of patients needing oxygen, as there were in Wuhan, there could be a supply crunch.
Absent government intervention, oxygen prices would spike.
So I asked myself which companies would benefit. It turns out that after a series of mergers in the field, there aren’t many publicly traded companies left in this space.
I did find one candidate:
Linde Plc (LIN, US$205.53, 537.2M shares, C$110.4B market cap, www.linde.com)
Linde is the world’s largest company dealing with industrial gasses for many uses. It has an engineering branch as well. The medical oxygen business came from its acquisition of Praxair in 2018.
Linde is a stable, consistently profitable company.
The long-term stock chart tells a very positive story.
Despite the above, the stock is relatively on sale after last week’s market meltdown.
There are very few ways to speculate on higher oxygen prices, and this is one of them.
This is a mainstream stock that has already shown it will drop if there’s more panic selling on Wall Street.
The company’s business of supplying oxygen to hospitals is part of a larger business that would suffer in a major economic downturn.
The US and other markets where Linde operates may not see as many severe cases of COVID-19 as China did.
Frankly, this is not a business I know well. I have no data on comparable companies. This thing could have just suffered a fatal setback on some technical basis, and I wouldn’t know it.
This is a near-term trading idea I had. Given the company’s long and successful track record—stretching back to well before the insane highs on Wall Street in recent years—I could see this as a company to own if I were interested in mainstream stocks.
It’s extremely risky to consider any mainstream stocks in the face of what could be the next 2008-style event.
And I really can’t say I’m sure there will be a supply crunch in oxygen for hospitals.
The bottom line here is that the speculator in me can see Linde as a possible winner based on a record Q2 2020, but due diligence in this space is beyond my competence.
I’m not buying this stock, and I’m not suggesting that anyone do so.
It is, however, interesting to consider what else might benefit from the unfolding economic debacle of 2020. I’ve been looking. Between what I don’t know about other industries and the potential for a major market meltdown this year, the world’s longest-serving safe-haven assets look like the best bets to me.
That’s gold and silver—which I do understand.
Whatever volatility there may be in the immediate future, the trends for these monetary metals are clearly, strongly positive.
I was a buyer last week, and I hope to add to my positions on greater volatility in the weeks ahead.
That what I’m doing with my own money.
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