Why Metals Protect Portfolios – and How to Get Started Arming Yours
Hello, Reader.
In Ancient Greece, particularly around the seventh century BC, warriors’ armor was often made from bronze – a strong, durable alloy of copper and tin that could be crafted into protective helmets and breastplates.
While this metal offered crucial protection and flexibility in battle, it was still just armor. The copper-based defense was only as good as the fighter wearing it.
Similarly, in the stock market, precious metals do not automatically make for a resilient investment portfolio, but they’re often included in them.
That’s because metals like gold and silver have earned a well-deserved reputation for repelling harm during traumatic times. Often, they rise when stocks are vulnerable.
Gold – the star of the precious metals family – is not an investment for civilized times. It is an investment in disorder, instability, and/or uncertainty.
Ironically, therefore, as economic or geopolitical conditions become less civilized, gold’s returns become more civilized… or at least respectable enough to mention at cocktail parties.
Gold has set a series of record highs this year and shows no sign of losing momentum. Quietly, almost invisibly, it has racked up an astounding 40% gain this year, which is more than three times the return of the S&P 500.
I doubt this record-setting gold rally has run its course.
The gold market remains a tinder box looking for a match. For starters, the gold market is tiny, bordering on infinitesimal, relative to the stock market.
As the chart below shows, just one stock, Tesla Inc. (TSLA), is worth 50% more than the combined value of all the gold held by exchange-traded funds plus the value of every major gold-mining stock in North America.
To be sure, Tesla shareholders are not likely to abandon their holdings to flock into gold, especially after Elon Musk recently snapped up $1 billion’s worth of shares.
But if we expand our analysis to the entire stock market, the math becomes more interesting. The market capitalization of the U.S. stock market is 75,000 times larger than the combined value of all the gold held by ETFs plus the value of every major gold-mining stock in North America.
Therefore, any shift from stocks to gold – even a teeny-tiny one – could power a major gold rally. That possibility is merely theoretical, of course… until it isn’t.
There is another catalyst out there ready to goose the price of gold, which I’ll share below – along with where to find my favorite plays on the metal.
But first, let’s take a look back at what we covered here at Smart Money last week…
Smart Money Roundup
September 17
Why You Should Adopt This Gen Z Mindset While Investing
The more that AI infiltrates our daily lives, the more we will crave uniquely human activities and increasingly safeguard and relish the nondigital aspects of our experience. Indeed, Gen Z is proving to be a significant force in the marketplace, and these “youngsters” are craving tangible, real-life experiences.
I’ll detail why this generational shift toward authentic, hands-on experiences should be heavily considered in our current AI age… and share how you can access a company that is perfectly positioned to profit from this “return to real-life.”
September 18
The Company Leading AI’s “Model T Moment”
When cars first rolled out in the late 1800s, no one really knew what they should look like. The lack of precedent meant a new technology (internal combustion engines) was shoehorned into an old technology (horse-drawn carriages).
Today, most AI data centers are also shoehorning new technologies into old systems. But one company is changing that formula. Tom Yeung shares all of the details on the company that is packaging new AI technologies into a new business model.
September 20
The Rise of the “New Market Aristocrats”… and How to Join Them
The immense wealth divide in the U.S. is as old as the American oil industry (and as old as steel, railroads, and shipping, for that matter). But the thing is… It’s growing wider.
Thanks to AI, the financial chasm between folks is expanding by the day and creating a growing roster of new market aristocrats, along with extreme social and economic imbalances. So, let’s take a look at the rise of a new elite. Then, I’ll share five specific tactics you can use to join them.
September 21
AI Is the New Oil – and America Is Laying the Pipeline
Every market cycle is shaped by a defining force. In the 20th century, it was oil. In the early 2000s, it was the internet. And today, it’s artificial intelligence. As investors, the challenge is not to be distracted by daily turbulence, but to focus on where real, long-term value is being created. Luke Lango joins us to share how that value is being laid brick by brick in the foundation of the American AI boom.
All That Glitters Is…
The stock market’s lofty valuation is also a possible catalyst for the gold price. A high-priced stock market often presages a major gold rally.
For example, based on month-end price-to-earnings (P/E) ratios during the last 40 years, the months in the highest valuation decile signaled the start of a 52% gold rally over the ensuing five years, on average. By contrast, months in the lowest valuation decile signaled the start of a 4% gold selloff over the ensuing five years, on average.
Bottom line: Pricey stocks often lead to strong gold rallies.
Given that tendency, coupled with the range of other factors that could trigger the gold-buying impulse, the gold market should continue its record-setting ways for a while longer.
It is important to note that buying gold is purely optional. However, we consider gold and other precious metals to be a worthy portfolio hedge. Think of them as financial armor, similar to the protective value Ancient Greek warriors found in copper-based armor.
Gold’s glittering advance has already been good news for related positions in Fry’s Investment Report, like one of our gold and silver plays that’s up 14% since we added it to the portfolio in June.
Copper is also doing well for us. Freeport-McMoRan Inc. (FCX), one of the world’s largest publicly traded copper producers, is up 18% year-to-date and up 214% since we added it to the portfolio in 2020.
To learn more about how to get my other gilded recommendations, click here.
Regards,
Eric Fry
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