Three recent developments may lead you to adjust your portfolio:
- Gold is hitting new records.
- If you like gold, you’ll love silver.
- A “Trifecta” of indicators suggest that volatility is coming.
Meanwhile…gold is setting record highs.
While Bitcoin and semiconductor stocks have been grabbing most of the headlines, gold has been quietly setting record highs this month.
This chart from Tavi Costa shows that we may be on the cusp of another gold bull market:
Despite the surge in gold prices, gold miners are still undervalued. I expect that to change soon, however.
The market appears poised for sustained volatility (more on that below). Historically, that’s been good news for gold and even better news for gold miners. That’s because mining stocks perform like gold on steroids. When the price of the metal rises or falls, their associated equities tend move even more in that direction.
If you don’t own any gold or gold mining stocks, I encourage to consider adding them now. Doing so gives you not only a “chaos hedge” but also a chance to profit as volatility rises.
If you like gold, you’ll love silver.
When gold rallies, it tends to bring other precious metals along with it. Silver is one of those.
But there’s another potential catalyst for silver: a supply shortage.
Here’s Tavi Costa again:
Tavi Costa on LinkedIn
Silver production from Mexico and Peru, the world’s two largest producers, is at its lowest point in 14 years.
The combined output is now down 25% from its 2016 levels.
As gold breaks out to record levels, igniting a new bull market for precious metals, a major supply and demand mismatch is poised to drive silver prices significantly higher.
Like gold mining stocks, the price of silver can move like a puppy who just downed an espresso.
There are some key differences with silver, however:
- Lower cost: Silver is much cheaper than gold.
- Industrial use: Silver has a wide range of industrial uses, from electronics to solar panels. This means that the demand for silver is not solely driven by its value as a precious metal. It has a practical use in the economy, which can lead to steady demand.
- Potential for higher returns: While silver is generally more volatile than gold, it also has the potential for higher returns. When the price of silver rises, it tends to surge faster than gold. Of course, this also means that it can go down faster as well, so investing in silver carries more risk.
A signal from the “Trifecta.”
Michael Gayed is one of the best in the world at connecting the dots across asset classes and uncovering what’s likely to drive the market in the near term.
Gayed says that the most important story isn’t why gold is rising “but what else is happening alongside it.” Utilities and long-term Treasuries—both seen as defensive assets—are also rallying.
It’s not just this “trifecta” of risk-off assets (gold, utilities, treasuries) that investors should monitor either. Gayed also pointed to recent manufacturing data:
Michael Gayed, “Gold Lumber and Utility Stocks, Oh My! A Dangerous Trifecta Warns of a Stock Market Crash.“
The role of the manufacturing sector as a barometer for economic health cannot be overstated. Recent disappointing figures have likely contributed to a revival of risk-off sentiment, as manufacturing is often one of the first sectors to reflect changes in the economic cycle. When manufacturing stumbles, it can be a precursor to a broader economic slowdown…
The interplay between equities, commodities, fixed income, and economic indicators is often where, at the margin, you can start seeing things shifting. We are getting to the point where the warning signs are all starting to flash at the same time.
Risk-off sentiment doesn’t necessarily mean that stocks will crash. It does, however, signal a high likelihood of volatility, especially when you factor in inflation, interest rates, and an election year in the U.S.
Most investors struggle with volatile markets. They’re not only tough to trade, but they’re also tough on your emotions. Wild swings will test anyone’s risk tolerance regardless of how long you’ve been investing.
The best thing you can do is to prepare now—before volatility spikes.
In addition to holding chaos hedges like gold and silver, set trailing stops and consider hedge trades like a protective put.
Stocks and ETFs to consider.
For specific ideas on how to invest in gold and miners, check out the Antagonist Blend Portfolio. You can access it for free for 7 days.
