“Markets are constantly in a state of uncertainty and flux, and money is made by discounting the obvious and betting on the unexpected.”

–George Soros

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September 23, 2024 – September is trying hard to buck its historical reputation as the worst-performing month of the year. With a week left on the clock, September 2024 is holding onto gains.

As if to prove, the market makes us all the fool, the S&P 500 registered its 39th record high for the year last week. 

Ha. 

We’re sticking to our guns. We expect our cautious tone of the past few weeks will look less foolish next week. And markets will likely change in October, as investors start to hyper-fixate on the 2024 election.

When the election gets mired in vote counting and other general confusion, it may get worse for awhile still. Then, another surge higher through the year’s end, seizing once again on rate cut euphoria after November’s 6-7 Federal Reserve meeting.

It’s all speculation. Our cautious tone remains in effect. Meanwhile, our favorite yellow metal keeps trending higher. In trading this morning, at 10:30am, it clocked out another new high of its own at $2,651.

Back when he was still hot on the “flat tax,” after running for president, Steve Forbes used to speak at our conference in Vancouver. He would always comment that “the price of the metal was a sign of how well governments and monetary policy were operating.” It was a theme in his columns for Forbes at the time, too.

Of course, that was 20 years ago, when “the metal” was traded for around $600, or a mere 25% of what gold costs in dollar terms today. Still, his comment stuck with me… and is, like gold, a stalwart to this day. 

With gold hitting new all-time highs in dollar terms (not to mention most other currencies), knowing how to invest now is crucial.

Following up on last week’s observation that retail investors still aren’t in the metal right now, our portfolio manager, Andrew Packer, shares some insights on how to invest in the metal ahead of retail investors piling in. Enjoy. ~~ Addison

How to Play a Gold Rally Now

Andrew Packer, Grey Swan Investment Fraternity 

 

Last week’s Fed rate cut lit a fire under financial markets. The central bank managed to make a 50 basis-point cut, historically a sign of worry, into market strength.

At least for now. For most investors, the move has likely been a relief following some sharp pullbacks in August and early September. We’ll see how long it lasts.

While the stock market reaction has proven fascinating, the real story is that gold is holding up here. After all, if the economy is good, the metal should be declining, not hitting new highs.

As Addison noted last week, the market is looking for R*, a neutral interest rate. There’s a strong argument we’re well above that point. 

Gold gets the proverbial wind at its back when the real interest rate is below the neutral rate. That means that interest rate cuts, which make the cost of borrowing cheaper, shouldn’t impact gold prices. 

So what’s going on with gold now? 

Besides the central bank buying, astute investors may use gold to address their concerns over a repeat of the 1970s and the double-dip inflation. 

Remember, inflation ticked higher gradually in the late 1960s, and surged higher following the OPEC oil embargo in 1973.

After that shock, inflation moderated and cooled substantially, only to soar higher again in the late 1970s. 

While history doesn’t repeat itself, many may think that it could rhyme. The U.S. government’s finances are in far worse shape now than in the 1970s. We need lower interest rates to keep the costs of financing our debt low.

We could see a market shock, perhaps more along the lines of the yen carry trade unwind in August rather than an oil shock. But given where oil prices are, a shock there isn’t out of the question.

The bottom line? The market is acting incredibly complacent right now. It’s viewing inflation as dead – forever. But inflation never truly dies, like the monster in a horror movie franchise, it’ll be back, possibly before you know it.

That’s why gold continues to push higher. From trading under $2,000 per ounce last October, the metal is now over $2,640. The chart shows that this isn’t some blow-off top either, but a sustained uptrend:

And why you may want to have a higher allocation than just the physical gold bars or coins in your possession. (Don’t have any of that? Take some cash and get acquainted with your local coin dealer. That’s your first assignment.)

How to Play Gold Now

Gold’s price has been trending higher all year. The metal has even outperformed the S&P 500 on a percentage basis. 

But that trend hasn’t looked quite as strong in the gold mining stocks. These are companies that explore, and produce the metal.

As I mentioned last week, central bank buying currently accounts for more than 100% of what these miners are producing. And that retail investors haven’t gotten to the party yet.

That could bode well for the miners. On one level, when retail investors look at gold, they don’t look at buying and holding the physical metal. They like mining shares, as those tend to perform well during a bull market.

Higher gold prices mean higher profits. 

To simplify, the gold mining company that has costs of $1,500 per ounce makes a 25% profit when the metal is at $2,000. But it makes a 100% profit when the metal sells for $3,000.

There are plenty of ways to own gold stocks and add this exposure to your portfolio.

The easiest ways are with the VanEck Gold Miners ETF (GDX). This owns a basket of the major gold stocks. You avoid the company-specific risk from having any single gold stock holding in your portfolio.

There’s also a VanEck Junior Gold Miners ETF (GDXJ), which owns more exploratory companies. That’s an ideal stock to watch for gold prices really taking off as a trade.

But there’s an even smaller niche for investors now. It’s a type of gold stock that carries ultra-low risk, but high profitability, especially when gold prices are on track to trend higher.

Addison has just put the finishing touches on his top gold stock for 2025. It’s a great read (I’ll admit to some bias as Addison and I put a lot of research into it). And it’s available for paid-up Grey Swan Investment Fraternity members.

It outlines a gold mining opportunity that has some of the best profit potential in the commodity space. And in the years ahead, a higher trending gold price could mean this company provides investors with massive returns. ~~Andrew Packer, Grey Swan Investment Fraternity

So it goes, 

Addison Wiggin, 

Grey Swan

 

Please send your comments, reactions, opprobrium, vitriol and praise to: addison@greyswanfraternity.com