Earlier this year, Berkshire Hathaway launched its heavy name behind Barrick Gold GOLD,
with an investment that faced Warren Buffett’s long aversion to gold. The news “was shaking in the gold market,” a strategist said at the time.
Now, Kevin Smith, chief investment officer of Crescat Capital, says others are following the case by adding exposure to GC00 gold,
and reaping profits from some of these highfliers will be richly rewarded when it becomes the bullish market. Smith, who earlier this year spoke about learning the ropes of a stack of Berkshire BRK.A shareholders,
the letters his father gave him a long time ago, used this chart to show how investors might be at a crucial time.
Basically, stocks are trading at record valuations, while commodities have never been so undervalued. “The setup is set for a pivotal macro on the relative performance of these two asset classes,” Smith wrote in a note to clients. “There were conditions comparable to the 1972 Nifty Fifty and 2000 Dotcom bubbles.”
He explained that investors will soon try to allocate their money to higher growth and lower valuation opportunities, and this will result in a great move away from the heavier stocks that have brought this bullish market into record territory.
“Investors with analytical ideas will soon change, otherwise they will disappear from the costly growth actions of the era of deflation and fixed income securities and move to cheap hard assets, creating an investment in the declining 30-year trend of the monetary speed, “Smith wrote. Some popular ways to play the rotation Smith predicted would be to go long Newmont Corp. NEM,
and Barrick Gold, or participate in ETFs like GDX GDX,
i GDXJ GDXJ,
Then the even bigger opportunity, he says, is to pick the winners on the side of exploration.
“To be frank, buying gold or silver is not an opposite position to investing today,” Smith wrote. “There are enough people agreeing with the idea that all government-backed fiat currencies are doomed to some level of devaluation through inflation due to the level of fiscal and monetary recklessness and unsustainable debt imbalances in the financial system “.
There is still no sign of this rotation, with futures on the Dow Jones Industrial Average YM00,
Nasdaq NQ00,
and S&P ES00,
all leaning higher before Monday’s session.