Gold stocks are on the move again.
Our man in the White House is going heavy on the financial boondoggles: deficit spending, lower interest rates, tariffs.
The market can see one thing clearly: Trump’s an inflationista. Get your gold in the bank, or the ground, or the cupboard, sooner rather than later.
One way to describe markets is to say that news generally goes with the trend.
The trend of gold prices over the next five years is higher. Yes, even higher than they are now.
But likely you know this already. The starting gun for the gold stock rally went three years ago…back in 2022.
It’s not that you can’t make money in gold shares now. But they’re not as suppressed…unloved…uncertain as they were then.
The explosive move we saw earlier in the year can’t happen every other week.
More than anything, I’m an opportunist. I want upside, the bigger the better.
If that means buying a property, I’ll buy the property. If that means buying gold stocks, I’ll buy gold stocks.
Right now…I’ve got my eye on lithium.
This seems a similar set up to gold shares back in 2022.
The lithium “story” went haywire, relative to the script, over 2023 and 2024.
There was supposed to be an epic surge in electric vehicles, batteries and more.
Instead, the narrative faulted. Most urgently, the lithium price collapsed.
So, we’ve had all the classic signs of a bear market: mines shut, explorers deserted, projects delayed or abandoned.
And yet…
Commodities are cyclical. Always have been, always will be. The poor fools who bought at the top arguably got what they deserved.
You don’t buy those types of shares when they’re booming. You’re supposed to buy them when they’re down.
Lithium shares were certainly down at the start of the year. Lately, we’ve seen tentative signs of a new rally beginning.
We’re a long way from the wild, heady days of 2021.
But odds on there’s a “big squeeze” coming again to lithium.
The beauty, and bane, of resources is the timelines.
All those lithium projects wiped out, written off or waylaid by the downturn now turn into the driving force of the next bull market.
By 2027 or 2028, odds on, the world will be caught short lithium.
Solar…electric vehicles…batteries…none of these things are going away. In fact, they’re only going to get bigger.
At some point an enormous demand pull is going to swell…and existing lithium projects won’t be able to match it.
That’s what’s happening in the gold market now, but the market wasn’t pricing that in three years ago.
There was a “time” arbitrage available back then in gold. I believe the same to be true in lithium now.
You can buy now, as they say, to cash in later.
Of course, you need to be patient. You’ll need to ride big volatility. And, as always, the whole idea might be wrong. There is no investment without risk.
One thing I’ve learnt over my years at Fat Tail is how the average investor does not behave like Buffett advises when he says, “Be greedy when others are fearful, and fearful when others are greedy.”
I know from experience. In 2023, I shouted from the rooftops to buy up the market. Few people came with me.
Today, the ASX/200 is up 40% in 3 years. The average gain in my “small cap” portfolio is even higher.
Here’s the point: as the market marches higher, it gets harder to find big upside.
This is so blindingly obvious it’s a mystery to me that I feel the urge to write it.
And yet we have more people joining our services now than three or two years ago. That’s because they’ve got that warm, fuzzy feeling when markets are rising.
The herd goes with the trend.
This is why I am excited by lithium. It’s one of the few areas of the market that hasn’t “rerated”, as they say, over the last three years.
It’s got its own cycle going on.
I may not be right, when we look back in three years. But the odds tell me there’s better prices, and bigger upside, in lithium than any other area of the market.
My colleague Lachy agrees with me. He recently sat down with our publisher to explain why. I urge you to watch it.
It was made for our paid subscribers. Lachy is making it available as a gesture of goodwill.
You can see it here.
Best Wishes,
Callum Newman,
Australian Small-Cap Investigator and Small-Cap Systems
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Murray’s Chart of the Day –
Global Bond Rout
Source: TradingView
[Click to open in a new window]
Investors are voting with their feet, dumping long-term bonds around the world.
And some of that money is finding its way into precious metals.
Gold is breaking out to a new all-time high and silver has catapulted above US$40 to a 14 year high.
People are asking whether it will be the UK, France, or Japan that explodes into a fully-fledged financial crisis. Or perhaps all three..
Whatever is going on it feels like the crisis before the crisis as people in the know start making their moves, knowing that the you-know-what is about to hit the fan.
Stocks continue to levitate higher day after day, and so I remain long and hopeful the good times continue.
But I have a keen eye on the path of bonds and precious metals at the moment. I’m wondering whether they are a canary in the coal-mine warning me about what is to come.
Trumps attempt to bully the Fed into lowering interest rates could end up having unintended consequences. A steep yield curve as a result of expectations that inflation will become a problem again is one possible outcome.
How high do interest rates on long-bonds in UK, France, and Japan have to go until stocks react?
I don’t know the answer to that question, so all we can do is watch and wait.
Regards,
Murray Dawes,
Retirement Trader and International Stock Trader
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