You’ve probably heard the story.
As the legend goes, on a late-summer morning in 1929, Joseph Kennedy — patriarch of the famous Kennedy family — was headed into his office in downtown New York City. As he sat for a quick shoe shine, the young boy buffing his shoes, barely a teenager, eagerly offered him stock tips.
Kennedy listened politely, but inside, he felt a jolt of alarm.
Supposedly he rushed to his office, dumped his entire stock portfolio, and moved heavily into cash. And just weeks later the stock market collapsed.
There’s a good chance this story isn’t true; I’ve often heard it told with Sir John Templeton in place of Joe Kennedy… and when urban legends can’t even get their protagonists straight, that’s usually a sign of fiction.
Curiously, however, a similar thing actually happened to me.
It was March 2009— six months after the Global Financial Crisis kicked off that wiped 50% off the S&P 500.
I was living in Punta del Este, Uruguay at the time and was coincidentally getting my shoes shined before heading to the airport for a trip to Asia.
The shoe shiner, an elderly Uruguayan man, asked me what I did for a living. I mentioned something about finance, at which point he cautioned me to avoid the stock market.
At that point the S&P was at its crisis-era low… and would go on to nearly 10x over the next 16 years.
Another story that is true is from August 1979: Businessweek magazine famously declared “The Death of Equities,” capturing the widespread view that stocks (which had suffered in the 1970s) would continue to languish.
Yet the stock market was just about to unleash a multi-decade bull run.
In April 2019, the same Businessweek ran a cover asking, “Is Inflation Dead?”, again capturing the popular idea that there would never be inflation again. That turned out to be 100% incorrect.
Then there was the famous Bitcoin craze in November 2017: families across America spent their Thanksgiving holidays opening up Coinbase accounts and bidding up the price of Bitcoin to its (then) all-time high. Crypto subsequently entered a multi-year bear market…
Anytime I see popular bandwagons, I become nervous. And I’m starting to see some signs of that with gold.
One glaring signal is that Costco— which sells gold to its customers— sold out its most recent inventory of American Eagle Gold Coins in less than four days. Gold demand is surging among retail investors.
Dealers are reporting crazy volumes. The media is talking about gold daily now, whereas in the past they used to go weeks or months without a mention of gold.
The Wall Street Journal even ran an article this past weekend entitled “How to buy gold”.
Big investment bank analysts who, heretofore had ignored gold or been extremely bearish, are suddenly its biggest champions. Even the notorious Goldman Sachs is now projecting nearly $4,000 gold this year.
And only a handful of analysts are bearish.
Look, we’ve been talking about gold for years… and in particular since 2023 when it became obvious that there were long-term catalysts.
It’s pretty easy to understand: central banks around the world are trading in their US dollars for gold, simply because they don’t have confidence that the dollar will last as the global reserve currency.
And central banks don’t have a lot of options; there are only so many non-dollar asset classes that can absorb hundreds of billions of dollars worth of capital flows. Gold is one of the most convenient.
I’ve explained before that, because of these capital flow trends and catalysts, we could easily see $5,000 or even $10,000 gold over the coming years.
But at the same time, the trend line for the gold price has been incredibly steep ever since its low in 2022. And, again, there are now signs that a retail gold mania may be forming.
I’m not saying that gold is too expensive or that it’s time to sell. These short-term market trends are extremely difficult to predict, and I tend to ignore them.
Instead, I focus on the long-term big picture. And that’s a lot easier to see: the US fiscal situation is in major decline. The government is doing very little about it. And the rest of the world is already diversifying away from the dollar.
All of these trends are good for gold.
Who knows what investors will do over the next few months? But over the next five years, you can make a very strong case that central banks will continue to buy gold and send the price higher.
At the same time, I recognize that it’s difficult for some people to buy an asset when it’s at/near its all-time high… especially when it may suffer a short-term correction.
This is why we’ve been writing about an alternative to gold; because, while gold is near its all-time high, many gold companies are still undervalued relative to gold itself.
I’m talking about really solid, profitable gold miners trading at less than TWO times forward earnings. It’s ridiculous.
In a way it’s the opposite of the crypto phenomenon with Microstrategy (MSTR)— the company which primarily owns and holds Bitcoin.
Microstrategy (technically now called “Strategy”) owns 553,555 Bitcoin worth $52 billion. That’s pretty much their biggest (and nearly only) asset.
Yet the MSTR’s market cap is $92 billion.
In other words, the Bitcoin-related company is worth nearly double the amount of Bitcoin it holds. This makes no sense.
With gold, it’s the opposite. Gold is near its all-time highs… but the gold-related companies are cheap and undervalued.
Some investors are starting to notice— for example, multiple precious metals companies we have published in our investment research service have risen by 40-60%.
One has more than doubled in price… yet is still trading at a forward multiple of just 2x.
So, gold is bizarrely the opposite of the Bitcoin effect with Microstrategy: gold is at a record high, but gold companies are cheap. I’ll say it again— this is not going to last.
