Earlier this year, Berkshire Hathaway pitched its heavyweight name behind Barrick Gold GOLD,
with an investment that flew in the face of Warren Buffett’s old aversion to gold. The news was “earth-shattering in the gold market,” said one strategist at the time.
Now Kevin Smith, Crescat Capital’s Chief Investment Officer, says others are following suit by adding exposure to gold GC00,
and taking profits from some of those highfliers will be richly rewarded when the bull market turns. Smith, who spoke about learning the ropes from a pile of Berkshire shareholders BRK.A earlier this year,
letters his father gave him long ago used this chart to show how investors could find themselves at a pivotal time.
In short, equities are trading at record high valuations, while commodities on the other hand have never been more undervalued. “The intent is in place for a macro-pivot in the relative performance of these two asset classes,” Smith wrote in a note to clients. “Similar conditions were present with the 1972 Nifty Fifty and 2000 Dotcom Bubbles.”
He explained that soon, investors will try to put their money in the direction of the highest growth and lowest valuation opportunities, and that will result in a major shift away from the top heavy stocks that have led this bull market into record territory.
“Analytically minded investors will soon be rotating, if not out of control, out of expensive growth stocks and fixed income from the deflation era and into cheap hard assets, reversing the 30-year downward trend in money turnover,” Smith wrote. Some popular ways to play the spin that Smith predicts would be to go long at Newmont Corp. NEM,
and Barrick Gold, or play in ETFs like GDX GDX,
and GDXJ GDXJ,
Then the even greater chance, he says, lies in choosing the winners on the exploration side.
“To be honest, buying gold or silver is not a contradictory investment position these days,” Smith wrote. “There are plenty of people who agree that all government-backed fiat currencies are doomed to some level of devaluation due to inflation due to the level of fiscal and monetary imprudence and unsustainable debt imbalances in the financial system.”
No sign of that rotation yet, with futures on the Dow Jones Industrial Average YM00,
Nasdaq NQ00,
and S&P ES00,
all lean higher for Monday’s session.