First things first - I am not a gold bug. In my career I have been both long and short gold. In fact, if gold is done, gold and silver miners are excellent shorts here, as I can guarantee there is a huge number of investors who will be buying it all the way down.
I like gold as I saw wage inflation taking off, something I still continue to see. And I envisioned something like the 1970s, where inflation becomes entrenched, UNTIL we get a political change, and central banks that become pro-active rather than passive. Like the 1970s, I expect soaring gold prices, and long term bond yields of 10% or so. This is the long term graph I look at - and yes that small dip in 2026 is including today’s move.
On a smaller time frame, you can see that Gold v Treasuries are back to the 200MDA for the first time in 2 years. That is, if you had this trade on for a while, yes you are giving back some gains, but you should be well up. I suspect most money came in near the top.
Late last year, and early this year I was asked why I did not like silver or gold miners. The answer was that silver was too speculative, and gold miners are very very poor way to play gold. In my experience, whenever you get an “analyst” or “fund manager” telling you that gold miners still look cheap versus gold, you should run a mile the other way. Gold mining is a terrible business and will always be a terrible business and over any long term horizon will underperform gold. This is the NYSE Arca Gold Miners Index, relative to gold. Whenever you tell a gold bug that gold mining is a terrible business, they will then spend next hour to half hour telling you about cost curves, and how this mine they own is “special”. Anyway, I digress. For gold mining to work, you need gold to rise without energy costs to rise. Which is what we had until this month. If this trend of oil up and gold down continues, expect gold miners to get destroyed.
Silver was the precious metal that I really did not understand peoples excitement. Why would anyone want to be involved with a commodity with a price history like this? Bitcoin would probably make a better speculative asset than silver.
I was aware that gold was becoming popular - and when I was at the pub on Saturday, I had a number of people ask about it - which is always a worry. But Bloomberg keeps a tally of all known ETF holdings, and to my mind, this does not seem excessive.
Where I did see excess was in the shares outstanding of the SIL - Silver Miner ETF. Shares outstanding doubled in a year. Silver miners are also terrible businesses. I assume SIL US will open down 10% today, will open somewhere around 70 - or around where it priced in 2011. As mentioned before, precious metal miners are NOT long term investments, and anyone advising as such is not a serious investor.
My road to gold was built on a “pro-labour view” which means I prefer real assets to financial assets. I don’t like treasuries, as I see long dated treasuries going to 10%.
And I don’t like the S&P 500 as equity valuations make no sense relative to where interest rates are going in my view. Gold had turned higher against the S&P 500.
Even with today’s fall gold is trending higher against the S&P 500.
So what are markets telling us? Obviously they are expecting monetary policy to tighten (correct in my view), so inflation trades like gold and silver which had done well need to be sold (fair enough). But what the markets are saying to me, is that with gold weaker, the attraction of other assets is also weaker, especially the S&P 500 and Treasuries. While all the talk is of gold and silver, which shot up and then shot down, the S&P 500 has quietly broken is 200 MDA.
Likewise so has TLT US.
As has HYG US.
What all this says to me, if that markets believed central banks would keep the party going, so felt okay holding physical AND financial assets. Now central banks are stepping away, physical AND financial assets are falling. But I do not see austerity on the horizon, or deflation. I suspect physical assets outperform financial assets. With gold and silver looking weak - then the next step will be for financial assets to get destroyed. I do not know where precious metals go from here - but the outlook for financial assets is poor.
