With Wall Street fixated on SpaceX, the hard-asset trade has spent the past few weeks wandering through the financial equivalent of an abandoned mining town.
Gold, in particular, has been treated like yesterday’s story.
When gold first crossed $5,000 near the beginning of the year and then sprinted another 10% higher to $5,500, we told members of the Grey Swan Investment Fraternity that the move looked unsustainably enthusiastic. “Too high, too fast,” we wrote. The metals were giving us vertigo.
Sure enough. On January 30, gold fell 12% in a single trading day. Silver got whacked for 26%.
Fast forward, over the past week, investors have dumped gold-mining shares with a level of enthusiasm usually reserved for defective appliances and losing sports teams:
Sentiment in the gold space has been crushed to a level usually seen right before a new leg higher. (Source: Stockcharts.com)
The gold miners bullish percent index typically measures how traders feel about the gold trade right now, and how they’re allocating capital.
Following a 78% drop in the past week to nearly zero, it’s a measure of capitulation!
Today, the market is insisting that investors would rather own a story than a cash flow statement. SpaceX IPO’d today at a $1.7 trillion valuation. The company shows strong revenues but has never posted a profit. Anthropic and OpenAI? Also, no bueno on the bottom line. These mega-tech companies have one goal at IPO, separate you from your capital.
Let’s compare: Following the big price drops in gold’s price, gold miners can now “only” sell gold for around $4,200 per ounce instead of $5,000 or higher. Many of them have models reflecting gold selling at $2000.
On a year-over-year basis, they’ll be generating a profit margin north of 50%, rather than 70%. Profit margins that executives in most industries would regard with open envy.
The last time gold mining stocks had this poor of a one-week period was during the pandemic. Investors who bought during March 2020were rewarded handsomely. Despite the short-term knockdown in early 2020, gold ended the year a beefy 25% higher.
Retail investors have a habit of arriving late to popular trades and abandoning unpopular ones at exactly the wrong moment. Gold miners have spent the past week reminding us that the second mistake remains just as common as the first.
It takes discipline to sell when others are greedy and buy when others are fearful. For a good entry point in gold, while sentiment is at a record low, check out today’s Grey Swan Pro — details here.
~ Addison
P.S. If you missed this week’s Grey Swan Live!, be sure to catch the replay with Adam O’Dell: What Comes After SpaceX?
The IPO may dominate headlines, but the larger story involves where capital flows next. Adam explores the AI buildout, energy bottlenecks, hard assets, infrastructure spending and the next phase of The Great Race as investors search for opportunities beyond the most anticipated public offering in history.
