Editor’s note:
I believe we’re on the cusp of a major shift in the market. I’ve been preparing a special investment brief called “The Great Rotation” for the past couple of months. Today’s issue of Golden Opportunity goes into a little bit of detail about this shift – but you can read my full brief by clicking here.
I don’t know exactly when, but something has to give in this market. As I discussed last week, the next step is for money to flow into gold and gold stocks. But first, we may need to see a major market decline.
I don’t say so flippantly. The market is currently on the outskirts of completely untrodden territory.
For one, the S&P 500 is being held up by a tiny fraction of companies. Half of all the index’s market cap comes from just 5% of companies – which are dominated entirely by AI related stocks.
But it gets worse, because the market itself is wildly overvalued to an absurd and historic degree:
(h/t to Elliott Wave for these charts)
Together, it means we have the most overvalued market in history propped up by the smallest number of individual stocks. All the eggs in one very overvalued basket.
The backdrop to this scenario is key.
One of the best understood trends in investing is the commodity vs. stock supercycle.
Simply explained, over long periods stocks and commodities tend to have an inverse relationship. Stocks outperform commodities for a decade or more, and then commodities outperform stocks with similar rigor.
So where are we in the stocks vs. commodities supercycle?
Commodities are flat over the past 20 years. Zero returns since 2006.
Stocks are up nearly 10 fold – after one of the most historic runs ever starting after the Great Financial Crisis.
It’s very unlikely that the next 10 years will be much like the previous 20.
While The Nasdaq Fell 78%… These Stocks Soared.
When the Dot-Com Bubble burst, the Nasdaq eventually lost 78%. But four gold miners subsequently delivered measured gains of 50X, 53X, 252X and 362X over their respective runs. Past performance can’t promise a repeat. But CFA Garrett Goggin believes the history of past market corrections exposes an overlooked truth: when a mania in growth/tech stocks ends, a bull market begins in gold miners.
Go here to see where Garrett believes money is headed after AI.
Which means we’re probably already in the early stages of a sustained, decade-long supercycle favoring commodities.
Right now, oil is leading the way.
But there are clear reasons to favor gold moving forward.
For one, consider that in just the past year, the US government added debt equal to about 8% of all of the world’s gold ever mined.
Also: gold stocks are the most profitable businesses in the market right now.
Investors holding overvalued AI stocks will look for greener pastures the moment there’s any kind of correction. And what will they see?
They’ll see sky high margins from gold stocks.
That’s when the “great rotation” will commence.
And look, I don’t know exactly when the market will flip from AI to gold.
No one does.
But that’s why it’s vital to prepare for this event now.
You can do so (for free) by reading my full brief on this scenario.
Click here to read my write-up on the Great Rotation.
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio
