SpreZZaturian
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Före detta hedgefondförvaltare, partner och VD på Futuris som utsågs till Årtiondets hedgefond i Europa för perioden 2000-2009
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The next 1000% trade is in gold mines

This post about gold refers to my post about uranium from the day before yesterday. The only real difference is that it's about gold.

Conclusion: I think it's about time to trade some of those expensive stocks for gold. Just as for URA there is a 5x potential in GLD here, and more so in GDX (miners).


The current technical case for gold

Talking about triple bottoms (see the URA trade), check out the senior goldminers ETF:

GDX

The chart is right at a pivotal point where the gold miners could break out upward, from the trend of lower highs toward a pretty solid constant bottom.


In a longer term perspective, the current formation looks like it's just the final confirmation pattern of a larger bottoming process:

GDX

The low point in early 2016 looks like an anomaly, a final "puke", where a lot of gold bulls simply gave up.

I should know, I did myself sell a minor part of my listed gold holdings there (to start making room for private gold exposure). Luckily, I saved the absolute bulk of my divestments for the peak in July 2016. That didn't mean giving up on gold altogether though, not even temporarily. I simply sold my listed GLD there, and bought shares in a private Canadian precious metals royalty streaming company instead. Read more about my investments here.

Since the Canadian company is moving a bit slowly for my taste with its contract signings, I've re-entered the listed gold market again as well, this time with exposure to GDX (gold miners):

Fair disclosure: My exposure to GDX is only about 1% of my net worth, while my investment in Canada is around 5%.


Looking at the underlying commodity through the GLD ETF, it seems more and more likely to me that the gold price correction (halving, approximately) that began 6 years ago is coming to an end, albeit slowly and hesitantly. Or is it just wishful thinking?

GLD

The fundamentals of gold, and the lure of 5x... or 10x

Gold doesn't really have a value per se (read more here). Nonetheless there are fundamentals pointing more and more acutely toward a surge going forward. Not least, China is hoarding the metal as a bargaining chip in a likely fiat reset or other currency accord.

Admittedly, these things take time, potentially decades, but the game is already afoot and I doubt gold can become much cheaper in USD. In contrast it can become much much more expensive.

I would be a little surprised to see the price of gold fall by more than 20% to new decade lows, and not that surprised to see it increase to 5x its current price in dollars. At the same time, I wouldn't be at all surprised to see stock markets halve over the coming 2-5 years, whereas I find it increasingly difficult to see where a 20% upside would come from, apart from a brief inverted puke.

Nota bene that while GLD just about halved between 2011 and 2016, the GDX fell by more than 80% to less than 1/5th of its peak price. If GLD only reclaims its previous peak of 185.84 (+54% from today's 120.77) it's probably realistic to expect GDX to advance by almost 200% from today's 22.79 to its previous peak of 66.92. Actually, I would expect more, thanks to miners having streamlined their operations during the long bear market for gold. Now, imagine what the miners might do if gold rose by 400% (i.e., 5x) instead of a measly 50%.

More recently the GDX increased by 2.6x (+160%) from trough to peak in 2016, while GLD increased by 1.3x (+30%).

You do the math.

(please note though, that there are huge differences between buying physical gold, a gold ETF and a gold mine ETF)

No matter, I'm getting out of the GDX trade as soon as I hear my Canadian venture is fully invested.


Summary

Gold has halved while stocks have tripled.

Gold doesn't have a valuation, but stocks are more expensive than ever (on, e.g., a median stock P/S multiple or Market Cap to GVA), and gold could be the go to place in a monetary reset. This is by no means a 100% safe trade, but it's way better today than it was back in 2009-2011.

The upside potential for gold is enormous, while technicals suggest the downside is quite limited. Conversely, the opposite holds true for stocks.


Continue reading about my views of macro, finance and investments here by the headline “INVESTMENTS”, e.g., this post about my holdings. Don’t miss my future musings on life, finance, health and happiness by subscribing to my free weekly newsletter — you’ll get my book on investing for free as well (we’ll see how long I’ll keep that up now that I’ve given away way over 10k pdf copies.

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