Gold’s current trend is opposite of Bitcoin’s, surprisingly

Have you heard the story before?
Legend has it that on a sunny morning in 1929, Joseph Kennedy, the patriarch of the renowned Kennedy family, was having his shoes shined in downtown New York City. The young shoe-shiner, barely a teenager, eagerly shared stock tips with him. While this tale is often told with Sir John Templeton in place of Joe Kennedy, the truth of its origins remains uncertain.

Interestingly, a similar situation occurred to me in March 2009, six months after the onset of the Global Financial Crisis that caused a 50% dip in the S&P 500. I was in Punta del Este, Uruguay, getting my shoes shined before a trip to Asia. The elderly Uruguayan shoe shiner, upon learning that I worked in finance, warned me to steer clear of the stock market. At the time, the S&P was at its lowest during the crisis and would go on to increase nearly tenfold over the next 16 years.

In another true story from August 1979, Businessweek declared “The Death of Equities,” reflecting the sentiment that stocks would continue to struggle after the tumultuous 1970s. However, the stock market embarked on a multi-decade bull run shortly after. Similarly, in April 2019, Businessweek questioned, “Is Inflation Dead?,” a notion that was proven incorrect. The Bitcoin craze of November 2017 saw families in America flocking to invest in cryptocurrency, only for it to enter a prolonged bear market soon after.

Whenever I witness widespread trends and enthusiasm, I can’t help but feel uneasy. And currently, there are signs of a similar phenomenon unfolding with gold. One notable indicator is the significant increase in gold demand among retail investors, illustrated by Costco’s rapid sell-out of American Eagle Gold Coins in less than four days. Dealers are reporting staggering trading volumes, and media coverage of gold has spiked, with even major investment banks like Goldman Sachs projecting a substantial increase in gold prices.

For years, we have discussed the potential of gold, particularly since 2023 when significant long-term catalysts became evident. Central banks worldwide are increasingly trading US dollars for gold, indicating a lack of faith in the dollar as the leading global reserve currency. Given these ongoing trends and catalysts, it is plausible to foresee gold reaching $5,000 or even $10,000 in the coming years.

Despite the steep ascent in gold prices since 2022, warnings of a retail gold craze emerging, and uncertainties in short-term market trends, the long-term outlook remains promising. As the US fiscal situation deteriorates, global diversification away from the dollar continues, providing a favorable landscape for gold. The trajectory indicates that central banks will persist in purchasing gold, thus supporting further price appreciation.

While investing in an asset near its peak may deter some individuals, opportunities lie in undervalued gold mining companies. These companies, trading at low multiples relative to their earnings, offer a compelling alternative to investing directly in gold. Like the curious case of Microstrategy, whose market value surpassed that of its Bitcoin holdings, gold-related companies present an interesting dichotomy by trading below their true worth despite the high price of gold.

As investors begin to take notice, appreciable gains in various precious metals companies have been witnessed, with some showing remarkable growth in their stock prices. The allure of relatively cheap and undervalued gold-related companies in a market where gold nears its all-time highs points to a potential shift in investment sentiment. As the market continues to evolve, opportunities for strategic and lucrative investments in the gold sector may present themselves, offering a unique investment landscape for savvy investors to explore.