The consolidation channel we witnessed for the majority of the summer was such a positive sign. Everyone was mad that gold wasn’t moving higher every day like in the spring but I was beating the drum that this was the most positive pause you can get. Usually when commodities or stocks take a “break” they actually revert and trade lower for a period of time. And sure enough it took very little to juice the price to a new level and change the landscape for companies/stocks yet again.
Obviously the stocks have been outperforming the commodity – we get that – it’s called torque. It is interesting to note there are some days where it is the opposite and it drives people crazy, and there is no rhyme or reason for it. Very likely a broader “factor rotation” going on within sectors where big quant funds or other are buying say Semiconductor stocks and selling Gold. All very normal and never lasts long.
What I need to emphasize here is how many investors are still underweight gold. We get incomings every single day from investors juststarting to do their work on the space who are benchmarked to the TSX which now has a heavy materials weighting. Astonishing. Can’t hide behind the “but we run a value fund” excuse anymore either. Not to mention those not benchmarked and just missing the move.
That being said, we are far away from peak FOMO, because when I get the sense that’s what’s driving a move I start to get concerned. I bring this up because every time there is news or upgrades (Goldman comes to mind…) I tend to hear “oh boy, that’s a sign of the top”. Hemlo sale certainly sparked some of those comments. But we’ve moved higher every time and proven the naysayers wrong. We are not at FOMO buying time. Yet.
What I’m enjoying watching is the small cap/juniors. Which is timely given Beaver Creek is ongoing as I write. How do you value these companies properly that have so much work and development still to do? Whatever, no one thinks about valuations right now so let it go Tom.
So where to here for Gold? Sentiment certainly is higher. No question. Hard to make a macro argument for it to go lower. We have the tailwinds of the US fiscal situation, slowing US economy and the Trump Administration’s attack on the FED. US$ continues to slip. Gold is priced in dollars. Inflation is still a giant problem. Short-term interest rates are falling, decreasing the opportunity cost of holding gold rather than cash, but long-term rates have stayed high because of concerns about inflation, which also make gold more attractive. Are we broken yet about the tariff narrative???? I am. Uncertainty is the norm. Not to age myself but do you remember like 20 years ago the major indicator was jewelry demand mostly in Asian markets? We never talk about that anymore. Price-sensitive retail buyers have been left behind, central banks don’t care about prices like mom and dad do. The World Gold Council’s gold demand report for the second quarter shows how conviction buyers, and in particular gold ETF buyers, came on strong in the first half of this year — see the dark blue portion of the column at right in this WGC graphic:
And, to close off on gold, the markets are expensive and extended. You can’t bet against the market you keep getting proven wrong, but this chart is a big reason investors are after gold too, as it’s a hedge for if/when this goes wrong:
