Gold went up like a rocket but stopped. What next for gold?
While it is very attractive to get sucked into chasing the next SPAC (Special Purpose Acquisition Company) to fly to the moon on the back of some battery technology or the EV (Enterprise Value) narrative, speculation is often simply gambling. Most people, especially gamblers, do not realise there is a difference between gambling and betting. Gamblers lose, stakers win. The gambler is on one side of the table and the house is on the other. The house owns the game and the player will be lucky to own anything at all in the long run. If you are a gambler that wins you are one of two groups of people, a delusional or someone not welcome to the game at all.
In general, being the house is difficult because no ‘house’ wants competition and few places want gambling dens at all.
This is why the stock market exists, because gamblers can gamble and stakers can stake and the house still always wins, and the whole thing can be wrapped up in such a way as to cover the fact that for the most part participants are gamblers bound to lose.
To win in the stock market game, the odds have to be in your favour. That is all there is to it and it’s quite easy if actually terribly boring. The wisdom of Ben Graham and Warren Buffet has been in the public domain for decades but like the shelves of the teaching of 4,000 years of wisdom in a library, few travel to absorb it and most prefer to slump on a sofa and watch canned garbage piped into their media devices instead.
If you are going to leave the quiet grassy lanes of long term investing and not get lost in the tangled wood of speculation you have to have a map, and that map can be boiled down to finding the single most important call to make for the market for the next few years.
The speculators used to say it was ‘weed’ and now they say its ‘EV’ and next month it will be some other shiny bauble fated to pump and dump. It’s a game that can be won, but in the end money is travelling from the gambler to the house and as a player that direction needs to go your way, and to play it so it does is a highly skilled game.
Finding the overarching calling for the next three years is also tricky but if you can latch onto it, you are in great shape.
To me it is simple.
Are we in for high inflation over the next three to five years or not?
I say yes.
Everything pivots on that for me.
It’s an easy road for investing if you say yes. You don’t have to be an investment guru to say that if we get high inflation then gold and commodities will go up a lot.
I think that is right.
So keeping it simple: gold will go up a lot.
Well, it’s gone down.
So either the idea is wrong or gold is cheap. I think gold is cheap.
Why is it cheap? Gold is cheap because the jewellery market is on its uppers because lockdown has taken the wind out of global trinket sales. I think that will only hold back gold for so long and as I write gold could be near the bottom of this.
But it doesn’t matter if it’s the short term bottom or not. If you believe in gold you should be dollar cost averaging into a position or as the gold bugs say, ‘staking.’
I am staking gold equities.
Now if you believe in inflation you would buy crypto and while you might be late to the party there is fairly good upside there even if inflation only goes relatively high rather than goes into the oft-predicted hyperinflationary mode.
The spicy inflation trade is commodities and I don’t mean the gunslinging of leveraged futures, I mean miners, of which there are styles to fit all equity investment tastes.
Then there is oil, which bring out the Tourette-suffering contrarian in me.
When gold goes back through $2,000 you will know inflation is coming and gold will indicate how much of it we are going to get.
Right now, markets are broken by global printing by governance of stopgap money, they are not pricing right. This is great news, at least for us, because it gives a window to buy or sell mispriced assets and then follow the lead of other assets as they reprice.
If you don’t believe in inflation your investment and trading world will be utterly different from those who do believe in inflation, and it is the long term call we all need to make if we aren’t going to be blown off course by the hailstorm of noise the markets will throw at us all in the coming years.