Is it finally fun to be a gold investor again?
The Sunday Essay ☕️
I took a three-month break from my Sunday Essay.
Why?
Almost everything works better if you unplug it for a few minutes and then plug it back in again.
Anne Lamonde
Here are the last three months in brief:
On the professional side, I launched a new business—VRIC Media. It’s a platform built by commodity investors for commodity investors: online courses, podcasts, newsletters, and YouTube. It took longer and cost more than I expected (shocker), but the response has been fantastic, and I am excited for the year ahead. We soft-launched some products last month, with much more to come. Check out our weekly livestream every Wednesday at 2:00 pm PST / 5:00 pm EST. My guests and I talk markets for an hour while taking questions from the live chat.
On the personal (masochistic) side, I signed up for a 100-mile backcountry race in the hills outside of San Diego. I’ve been training about 20 hours/week for the last four months, and we are now less than three weeks away from race day (June 7), so ready or not…
Let’s go.
Let’s talk markets for a minute.
Is it finally fun to be a gold investor again?
With gold and copper recently hitting all-time highs, last year's “fools” have become this year's “smart money”.
Often the case with cyclical markets.
Despite recent rushes or rallies, my take on the commodity market has not changed—this decade will be defined by a reshuffling in global order and trade alliances. Consequently, it will continue to be a game of musical chairs for raw materials.
There is too much geopolitical tension and sabre-rattling between the world's largest commodity exporters and power players for any certainty of supply. And when the supply is uncertain, the price goes up…
Russia, the world's largest commodity exporter, is still embroiled in a hot war in Ukraine. In addition to oil, natural gas and uranium, Russia and Ukraine combined produce 25% of the world's grain.
China, who holds the monopoly on 90% of critical rare earth elements, is embroiled in escalating cold war tactics and trade wars with the West.
Indonesia, the world's largest nickel supplier, has halted exports as it jockeys for better trade deals between the East and the West.
Africa, one of the largest global suppliers of fertilizers, agriculture products, and many important minerals, has experienced nine coups de tats that overthrew governments in the last three years, with another six close attempts. Russia’s now infamous Wagner Group is parading around the Sahel Region, offering Regime Change Protection Plans—think military-based insurance policies against civil unrest—in exchange for bargain deals on natural resources.
For an up-close and personal take on this, check out my recent chat with Nolan Watson. Nolan had just landed in Sierra Leone to visit his organization, Nations Cry, when eight blocks from his hotel room, 2000 prisoners were released from jail, subsequently broke into the armoury, and then stormed the government building. Nolan found himself trapped in his hotel room only eight blocks away. Thankfully, he made it home safely. Watch the conversation here.
And on and on - in every corner of the world, we see leadership and alliances shift - in major ways.
Consequently, I am convinced that we will continue to see favour rotate through energy, base metals, fertilizers, food products, and precious metals in a recurring cycle for the decade ahead.
But even in a fundamentally strong market, there will always be cyclical volatility because two players are at the table.
Investors, who identify long-term trends in supply and demand, build a thesis based on this, and invest in related companies. And traders, who watch momentum in the price of things and attempt to capture the volatility.
This may sound basic - but it is important for two reasons.
The first reason is this: I know many traders who “identify” as investors. Investors use the stock market to buy fractional ownership in companies, while traders use it to flip share prices. There is nothing wrong with either, but it is important to know which one you are.
The second reason is that trading activity amplifies volatility swings. An investor may buy a company and own it for several years, but along the way, traders will move in and out of positions in the same company.
Since timing the market is impossible very difficult, many traders end up buying the top and selling the bottom, deepening and steepening both the peaks and valleys of price swings.
This is partially why both bear markets and bubbles tend to beat analyst expectations.
So, even in a fundamentally strong market, anything is bound to be overbought and correct to the downside, where it is oversold.
I take a long-term approach, so I don’t have to worry about this stuff. I have confidence in the reversion to the mean. Although I don’t know what the price of anything will be in 3 - 6 months, I have a much better guess at 3 - 6 years.
And as mentioned before, I also have confidence that the global reshuffling/new Cold War will continue to impact the supply and demand of raw materials and non-discretionary items for a long time.
For some unique geopolitical insights, last week, I interviewed the former Director of Counterterrorism at the CIA - a 29-year veteran. We had a fascinating conversation debating the desired outcome of various global power players and the incentives behind the US southern border crisis:
It’s good to be back. Have an epic Sunday, and I will see you next week.
Jay