Risk off, risk on – paper assets stage a comeback

Fourth card just went out, the river.

Poker is a tough game, and it’s the same players in the finals every time.

The gold price just got walloped.

Who’s still holding that now?

The precious metal that spent weeks screaming toward $4,400 per ounce has suddenly found itself nursing its wounds, tumbling below $4,000 as trade deal euphoria swept through markets.

Welcome to the revenge of paper trash.

While gold bugs nurse their wounds, a very different crowd is likely celebrating.

The biotech speculators. The small-cap afficionados.

The forward-dated-cashflow believers who’ve been starved of oxygen for months while commodities (certain critical minerals in particular) and precious metals hogged the spotlight.

The shift happened fast. One weekend of US-China trade framework chatter and suddenly investors remembered that stocks (real assets denominated in fiat paper) exist.

The traders have left the building

Here’s what’s actually happening beneath the surface.

Traders who rode gold from $3,800 to $4,380 in three weeks look to have taken their profits and run.

The metal dropped ~3.2% on Monday, extending last week’s 3.3% drubbing, making it the worst performance since April.

Silver got hammered even harder, plunging more than 16% from its peak near ~$54, now trading around ~$47. Critical minerals stocks that ripped 100-380% on government partnership rumours? They’re pulling back as reality sets in.

The pattern is textbook. Buy the rumour, sell the news. Traders extracted gains and moved on.

Gold specifically is suffering from what analysts call “unwinding of safe-haven positions”.

Trump and Xi sketching out a trade framework means recession and renewed trade war fears fade.

Geopolitical risks diminish. And suddenly that non-yielding lump of metal looks less attractive than a biotech with a Phase 2 trial readout next quarter.

If you’re a trader, this rotation makes perfect sense. Lock in 50%+ gains on gold year-to-date, pivot into beaten-down growth stocks and ride the risk-on wave.

The question you need to ask yourself is simple: what’s your timeframe?

Timeframes, timeframes – investor
or trader, which are you?

If you’re an investor there are big differences.

This represents a chance to double down for the long-term.

Governments aren’t going to stop debasing their currencies.

We’re likely still going to need massive amounts of critical minerals for the AI infrastructure buildout.

Bull markets need healthy pullbacks.

The question you need to ask yourself is simple: what’s your timeframe?

Paper trash gets its moment

A trade deal opens the window for a more speculative run for the riskier, more growth oriented paper assets.

There’s three factors to consider when figuring out why.

First, lower interest rates make future cashflows more valuable today.

Biotechs burning cash suddenly look less expensive when the discount rate drops.

Small caps with high debt loads get breathing room.

Second, risk appetite is back. When trade tensions ease, investors pile into the highest-beta names.

Things that don’t track the index with catalysts that can re-rate disproportionately on positive news.

The conviction game

So here’s where we are at.

Traders on precious metals and critical minerals are standing aside today, counting their wins.

For poker enthusiasts, which card will come on the river?

It feels like we are on the fourth draw card in a two player game.

(China – US that is)

That’s my feel.

But this river card creates opportunity for investors who think in years, not weeks.

If you believe structural demand for critical minerals will only accelerate as AI data centres multiply and governments stockpile strategic resources, then a pullback is a gift.

If you think central bank gold buying and currency debasement are multi-year themes, not three-week trades, then gold below $4,000 looks interesting.

Meanwhile, if you’re convinced this risk-on rotation has legs, and that the AI boom will broaden beyond mega-caps into smaller, nimbler players…then biotechs and small caps deserve attention.

The key is knowing which camp you’re in.

There’s a whole menu on offer for these themes and others in Australian Small-Cap Investigator. Click here to learn about my latest AI recommendation. A punter’s pick, following in the footsteps of the weirdest/greatest story ever to grace the ASX. Afterpay.