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lynalden.com
Final Thoughts: Precious Metals VolatilityPrecious metals have absolutely soared lately, with gold briefly reaching over $5,000 per ounce, platinum reaching over $2,500 per ounce, and silver reaching over $120 per ounce.
They had sharp corrections (especially silver) in late January, with a number of factors including the nomination of Kevin Warsh being pointed to as catalysts (due to his perceived hawkishness on policy). But ultimately, when price charts go vertical, it doesn’t take much to trigger a rapid drawdown.
The newsletter portfolio has been long precious metals since 2019, with strong performance from them. Within my research service, my stance on precious metals over the past year has been to let them keep running, and not trying to call a top too early, which has worked out well. However, I’ve also warned about not chasing it too much, and potentially trimming out some if a portfolio becomes too imbalanced. The problem is that the trade just isn’t as asymmetrical as it once was when they were all cheap.
With sovereign debt bubbles existing throughout the developed world, and with increasing animosity between the United States (the reserve currency issuer) and other countries, none of this should be surprising. What is perhaps a bit surprising is the “all at once” aspect to it, since the sheer speed and magnitude of these moves have been immense, but financial moves do tend to take longer than people think and then counterintuitively start to happen faster than people think.
When zooming out, we are in what is basically the fourth major bear market in US stocks relative to gold within the modern era. In this case, it’s because gold is going up a lot more than stocks, rather than because stocks are going down. That makes sense during a period of sustained fiscal dominance. And dividends don’t make up for it as much as they used to, because dividend yields are at record lows.
The first bear market was the 1930s Great Depression. The second bear market was the 1970s dollar default and runaway inflation. The third bear market was the aftermath of the Dotcom Bubble in the 2000s. And here, the fourth one, is occurring in the post-Covid stimulus environment and at a time when sovereign debts are the highest they’ve been since World War II, and when the post-WWII global order is being upended to some extent.
While I’m no longer as bullish on precious metals as I was years ago, I don’t view them as being in a bubble per se. I think they became overbought, but I primarily view them as having rapidly repriced out of undervalued status closer to fairly-valued status. They no longer offer the clear asymmetric upside they once did, and thus I would advise caution with them just like any other asset.
Best regards,
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