Coming into 2020, one of the two events that I had taking place during the year was gold going parabolic. Now that gold is getting there in terms of a parabolic move, it's a good time to flashback to late 2018, when the idea of gold as a long-term investment was presented here in an extensive write-up detailing all of the ways gold could go right in the years ahead.
Here is a small excerpt from that note. The link to the full research is at the bottom of the page:
Apart from an abundance of data showing that both gold and even more so, gold miners, are absurdly cheap. There is anecdotal data such as the fact that Vanguard recently changed their metals and mining fund name to the “Global Capital Cycles Funds,” taking down exposure to miners to just 25% of the fund from 80%. This leaves Vanguard investors, which, by the way is the largest mutual fund company in the world, with no way to participate in the advance of gold or gold miners. As an aside, the last time Vanguard made a similar move was in 2001, before the secular bull trend in gold started from $300. Needless to say, Vanguard follows demand by its investors. Investors have abandoned the sector, creating a highly asymmetric opportunity.
As is usually the case, investors tend to follow each other blindly over the proverbial cliff, without doing much in the way of thinking about liquidating asset classes that are either overwhelmingly in favor or taking positions in sectors that are overwhelmingly out of favor. This leads to vast discrepancies between price and actual value during periods of exuberant enthusiasm and despondent pessimism. The job of the investor is to capitalize on these discrepancies, which is often times an exercise in absolute isolation.
The act of buying into despondent pessimism is extremely difficult because you are effectively alone in your opinion, without evidence, other than your own, to substantiate a thesis. For a majority of investors, this is an extremely uncomfortable place. Others tend to thrive, seeking only situations where few other investors are present. T11's strategy dwells heavily in the latter discipline. Gold falls right into the classification of an extremely uncomfortable place where few other investors are present.
It doesn't simply stop at gold being a sentiment and value driven play. There are events unfolding in the geopolitical and macroeconomic landscape that leave very few scenarios where gold doesn't appreciate in value:
1. The Fed stops raising rates = dollar bearish/inflationary ramifications/bullish for gold
2. The Fed continues raising rates = substantially bearish for equities/inviting showdown with White House creating political instability/gold becomes an alternative asset class for investors seeking to hedge the instability
3. Quantitative tightening has just started to accelerate in Q4 2018, with the ECB joining the party with an accelerated QT in 2019 = compressed liquidity for global markets creating instability in global equities in developed markets/emerging market bullish/dollar bearish/gold bullish as it tends to rally in emerging market led economic advances
4. Any number of geopolitical scenarios involving Russia, China, the Middle East = gold will be seen as a safe haven asset
Zenolytics now offers Turning Points Market Intelligence premium service Click here for details.
Disclaimer
This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice.
This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website.
T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should not construe any discussion or information contained herein as personalized advice from T11 Capital Management LLC. Visitors should discuss the personal applicability of the specific products, services, strategies, or issues posted herein with a professional advisor of his or her choosing.
Information throughout this site, whether stock quotes, charts, articles, or any other statement or statements regarding capital markets or other financial information, is obtained from sources which we, and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in, the transmission thereof to the user. With respect to information regarding financial performance, nothing on this website should be interpreted as a statement or implication that past results are an indication of future performance.
