It’s not just the thought of making large contrarian bets that’s got some gold bugs wanting to puke—it’s the idea of staying long at all. They’re giving up.
Whether it’s disgust with market manipulation, bafflement over gold not doing what it’s “supposed” to do, or simply guts turning to water at the sight of so much red on brokerage statements, I’m hearing from people who want out. My very clear sense is that this isn’t due to some well-thought-out strategic move. It’s panic, pure and simple.
Unless you’re a new reader, you likely know my motto: discipline pays.
The corollary is that panic is an investor’s worst enemy.
I’m getting a greater sense of panic from gold stock speculators now than during the COVID-19 crash of 2020. I’d say it’s the most panic these old wolf whiskers have sensed since 2008.
I fear that a lot of good people are about to make some terrible mistakes.
Believe it or not, if I thought we were heading into another 2011–2015 bear market for gold, silver, and other metals, I would let readers know—and I’d sell a lot of stock.
But I do not think this at all; I see gold and silver stocks as oversold. The only reason I’m not buying more already is that I think we might get a shot at stupid-cheap prices in a market meltdown in the weeks ahead.
Could I be wrong?
Of course I could; I’m a speculator, not some omniscient deity condescending to play in the markets (or an egomaniac pretending to know what markets will do).
And while I do get plenty wrong…
- I was right about the commodities supercycle before the mainstream recognized it.
- I was right to turn bullish on uranium in 2018.
- I was right about gold and silver having bottomed in late 2015.
- I was right when I wrote in the January 25, 2020 edition of this letter, that the response to COVID-19 would rock the world and could send gold prices much higher.
- I was right about gold and silver rebounding after the crash of 2020 (as I was after the crash of 2008).
- I was right about persistent high inflation, post COVID-19 lockdowns.
- I’ve been right about the New Iron Curtain having major economic consequences.
- I’ve been right about the broader markets dropping this year as the Fed gets less accommodative.
- It looks like I’ll be right about stagflation soon.
- My Take subscribers know that I’ve been right in rating many hyped-up stocks with little or no value in the ground a thumbs-down.
So for whatever it’s worth, it’s my very strong sense that in a world literally struggling with war, famine, and pestilence—not to mention profoundly negative real interest rates—there’s a lot more upside than downside in gold.
Given the same inputs, it’s not surprising to me that silver—with its increasingly important industrial aspect—is down about 19% over the last year, underperforming gold. Don’t get mad at Darth Silver for pointing this out; it’s a simple fact. I remain convinced that when gold really breaks out, silver will not be left behind. And if The Powers That Be (TPTB) ignite a new reflationary boom, decreasing demand for safe-haven assets, silver’s industrial demand should make it outperform gold. This makes silver a win-win hedge against the possibility of gold weakening.
Mind you, I’m not saying gold can’t go lower. I’m saying that I do not think gold stocks are leading gold prices downward. I think the stocks will rise in value when the metals break out again—with gusto. This could happen in the months just ahead. I’d be surprised if it didn’t happen within a year.
As for industrial metals, that depends on the magnitude of the inflation component of the stagflation I see ahead. My take remains that I’m looking to buy more “green energy minerals” plays—especially copper stocks—on the cheap in the weeks ahead. I will offer more guidance on this as it develops. Apart from the near term, I’m bullish.
Uranium, of course, marches to the beat of its own drummer. For now, the stocks—and maybe spot prices as well—are being buffeted by fear of recession being bad for “the energy sector.” I’m even more keen to add more uranium to my portfolio than copper. As with gold and silver, the only reason I’m not buying more of the bargains already available is because of the potential for cheap prices to turn into stupid-cheap prices if equities in general crash.
As for the broader markets, days like yesterday, when risk assets rallied on the tiniest smidgen of hope (consumer expectations for inflation a year from now being revised from 3.3% to 3.1%), make me glad I did not say they would definitely crash. There really wasn’t that much else to move the markets—apart from Powell’s remark that his fight against inflation is “unconditional”—which markets shrugged off.
Watch out, however, for the US retail sales and PCE inflation reports next week. They could set off some major fireworks ahead of Independence Day.
I still see an elevated risk of a major “waterfall event” hitting stock markets in the weeks ahead, but if TPTB pivot, markets could soar like it’s 2021 again.
That’s why I haven’t sold down The Independent Speculator portfolio.
Instead, it’s packed with stocks that I expect to survive the potential downturn and/or do very well if markets take off again. I’d be happy to buy more of the best of the best if I get offered fire-sale prices.
I could say more, but I don’t want to distract anyone from the message above. I think this is more important than anything else I can say:
Don’t Panic.
Breathe deep.
Review what you know, what you think—and what you fear.
Make rational decisions based on the odds you project.
Key Point: Getting out of our markets until it’s “obviously safe” to get back in is not how contrarians speculate, and could be a huge mistake.
Realizing unnecessary losses on shares in great companies can leave one too scarred to buy back in again if prices do indeed go lower. If the companies do have the right stuff to survive and then thrive, taking such losses is indeed unnecessary. (Not sure which companies have the right stuff? My Take can help.)
Getting out of a market in which the fundamentals are so strongly on our side can also leave us short at the worst time—if the next major breakout is imminent.
Such emotional decision-making is how one inverts the speculator’s formula of “buy low, sell high.”
My friend Rick Rule likes to say that in the resource sector, one is either a contrarian or roadkill.
It’s times like these when we find out which of these we will be.
What if I’m wrong and all metals and mining stocks are headed down for years to come?
If I’m wrong, I will, personally, suffer major financial losses. I’m willing to take that chance because, while I don’t pretend to know what markets will do, I do think the odds favor my outlook and speculative investments.
I’m putting my own hard-earned money where my keyboard is on this.
That’s my take this week.
(As always, if you find value in my thoughts, please forward this email to anyone else you think might also. Thanks!)
This Week’s Q&A
I’m still scrambling to catch up after two weeks of due diligence travel with too little sleep, so I may have missed a question in my overflowing email In Box. If so, I apologize and will get to it next week. The questions I did notice are addressed in my “don’t panic” essay above.
If you have new, brief questions for me, please send them to L@LouisJamesLLC.com.
This Week’s Free Articles…
- Gold Bug Capitulation? For more color on the theme of the panic mistake I worry about some good people making in the weeks ahead, please give this interview a listen. I truly do think this is the most important thing I have to say to any investor today.
- INN Drills Deep on Uranium with The Independent Speculator. In this unusual interview, INN’s Charlotte McLeod focuses exclusively on uranium. She covered all the key points moving that market today. Highly recommended.
- Never Hold Your Breath. This isn’t a new article, but it’s highly relevant to my “don’t panic” message today (much more so than Douglas Adams’ Hitchhiker’s Guide to the Galaxy, which has the same message on the cover, but to very different effect).
In Closing
My interns have buried me with new takes and updates for My Take, so I’ll simply wrap up by restating my key point this way:
Panic might have helped our ancestors scramble up trees faster than lions could chase them, but as an impulse to action in the investment arena, it’s a gilded invitation to disaster.
Sincerely,