Started to sell some gold

Gold is up 10% in the past week and 33% in the past month.

Crazy, but not a record.  I'm selling 1/3rd of Equinox.  Its the highest beta gold stock I own, and some of its upside has been removed by recent divestments.

Honestly, I have no idea when to sell.  Today could be gold's top, or it can go to 6000, 7000, or 10000.

There is no quantitive way to measure that gold is "too expensive" or "over owned".

Gold has no fundamentals. There is no "high price" where demand gets substituted or destroyed.

It is going up despite low inflation.

It has gone parabolic, and can go more parabolic. In the last month of the 70-80's bull market, it rose 66% in a month.

COT data tells you that its over owned, and has been over owned forever. GVZ has surpassing its previous peak before the correction in Oct - a mere 10% two-month correction. Even if you sold beforehand, you probably didn't get back in.

‌What can make it keep going up?

• Increased liquidity - especially China and Japan. People buy gold when their currencies are shit.
• CBs holding currencies down to offset their trade surplus wit the US by buying a neutral reserve currency instead of USTs.
• War or threat of war.

What can make it go down?

• Japan stops spraying liquidity (think its from BOJ issuing shorter term bonds)
• USD drops enough so no more trade defecit. Asian CBs no longer need to intervene in their currency markets.
• US successfully delevers, so USTs look more attractive.
• World peace. Old-Man-Xi dies (will happen) and his successor says he won't invade Taiwan (dunno). Iran regime overthrown (likely). Putin leave Ukraine (no sign yet).

Best I can do is look for signs of technical weakness or over-exuberance.  Like:

• Gold bugs telling people to "Have Fun Staying Poor".
• Gold doesn't rise on good news (good news for gold, ie: bad news).
• The price rise gets stupidly parabolic (like in the 70s). Or GVZ makes all time highs.

‌My gut feeling is that we still have some way to go. This is not yet like Crypto in 2021. But in a bull market, your gut feelings are probably wrong.

‌At some point, I have to say that "this is getting ridiculous", slowly sell my gold holdings, and maybe keep a small position just to trade. The trouble is, there are no numbers to tell you where that point is.

2025 Review and Predictions

I made fuckloads of money this year.  A 31% return.  In dollar terms, more than triple what I got from my day job.

What worked?

• Gold: In late 2H24 and 1H25, I decided to buy gold.  Wanted miners and royalty companies for more torque, so I signed up for Mining Stock Monkey and bought 4 mid-cap companies.  Gold shot up, my mid-caps got taken over or merged, and my 10% position (at cost price) went up three times, giving me 70% of my returns this year, equivalent to 25% of my portfolio at the start of the year.

• Latam: I subscribed to Ian Bezek's Substack this year.  He forsaw a several South American countries moving to the right, with simple stock picks to benefit.  Most of these stock picks are up 30%, the thesis is probably halfway played out now.  Its responsible for 10% my portfolio returns, equivalent to 3% of my starting portfolio.

• Just Be Long: Hedgeye modelled Quads 3-2-1 around April, which basically means "buy the dip".  Buy anything thats going up - commodities, gold, silver, tech, small-caps, healthcare, banks, crypto - sell therm if they go down, keep them if they're still going up.  Rinse and repeat.  Its more complex but I'm keeping it short.  Gave me 20% of my returns this year, equivalent to 6% of my portfolio.  The tough thing is - to really make money, I sometimes ignore the Hedgeye trends and signals - for gold or Latam above.  Hedgeye is more about earning decent return through trading while limiting drawdowns.  Those last 2 words become more important as we head closer to the end of the bull market.

What didn't work?

• US Gas Pipelines: 1/3rd of my portfolio.  Flat, after doubling last year.  They keep paying dividends.
• South East Asia: My Singapore stocks(mostly Delfi) flatlined.  Sold off my Indonesian and the Philippines holdings after no movement.  Hartalega bombed.  Malaysia smelting Corp (tin) is doing OK now.
• Oil: 8% of my portfolio.  Low and Flat.  Luckily my stock picks are low cost producers: Var Energi and CNQ.

Predictions

What do I see in the future?  These are not so much predictions to trade off, but the way I see the world now.  And a reminder to keep our minds open to any possibilities.

• Trade war continues - the US and China are too far apart to reach a deal.  The US needs to re-industrialise to satisfy its long-suffering workers and keep military supremacy.  China needs to shove its exports down the throats of the rest of the rest-of-the-world, to prop up GDP growth and employment after a generational property crash.  Can't meet halfway.

• I believe there is a method to Trump's madness, his team has a plan.  If this is true we should see: 
• "Warp-speed" production for areas of US weakness.  Rare Earths.  Simple Active Pharmaceutical Ingredients.  Mid-stream minerals processing.  Uranium conversion and enrichment.  Haven't found ways to trade these yet.  (Had a small position in LEU, sold it after it tripled...priced in).
• Trump should become a little less crazy next year.  The craziness was to throw China off balance, but they realised what the game was by November.  I expect clarity on Tariffs, enough so that goods can cross borders multiple times while being manufactured, at least in USMCA (NAFTA).
• Triggering trans-shipment clauses to prevent countries that export to the US from importing from China.  Mexico already started.  NAFTA should be next.  Maybe Vietnam.  And maybe these countries will implement China tariffs anyway, if they don't want to de-industrialise.
• Maybe he triggers a US dollar devaluation.  Its long been argued that its required to balance the trade deficit and shrink the debt.   Probably good the for the stock market.  Small chance it crashes the market.
• Trump needs to deal with Canada.  Either till they cry uncle, or Alberta becomes the 51st state.  Either one helps my CNQ position.

• Trump needs to win the November mid-terms.  Expect helicopter money - he can mail a cheque to every working household.  So expect the economy to boom.  The only catch is that he does not need the stock market to boom - there's more workers than investors.  I'm sure he'd like it to boom, but its not a necessity.

• China Invades Taiwan - the odds of this are higher than appreciated, maybe 40%.  This is the Sword of Damocles that hangs over everything.  But its a 2027-2032 problem, not next year.  Haven't found a way to make money off this.  If war breaks out, physical gold will go up, but anything traded online (including GLD and my gold companies) will get hammered.

• AI is probably a bubble.  Data center growth may be responsible for half-to-all of US GDP growth.  I'll follow Hedgeye to see when it bursts I don't think its next year, but we'll see.

• Although I think LLMs are a bubble and not that useful yet, there are real benefits applying AI to specific problems.  Previously, software would automate anything that could be specified - now it will automate anything that can measured and be verified.  For example:
• Sorting fruit.  We can't specify exactly what a good fruit is, but theres enough examples to get teach an AI to do it.
• Missile targeting.  Feed it hundreds of images of enemy rocket launchers, so it can learn to recognise them,
• Speeding up drug research, development and testing.  Possibly halving time to approval.

Playing it may be as simple as just buying shares in any company that benefits from AI productivity.  Or looking downstream to the choke points (eg: If we get more new drugs released, the oligopoly of drug distributors should eventually benefit).

• Natty boom: AI datacenter buildout needs baseload energy, and natty is the only one fast enough to build.  I'll keep my Natural Gas pipeline stocks (1/3rd of my portfolio) and a Natural Gas producer (5%).

• Oil remains low till the mid-terms.  This depends on the Saudis, who are hurting, but I think Trump can make a deal.  This reduces inflation and strangles Putin.  After the mid-terms, maybe we get $80-100 per barrel.

Plan for Next Year

I'm 125% invested now.  Next year may be the last year of the bull market.

• Reduce exposure, sell my Hedge trading positions if they spike or roll over.
• Keep my gold positions, still in a bull market.  Its a hedge against exploding US govt debt, a neutral reserve currency, and a way for people in China to save amidst financial repression. 
• Sell my LATAM positions as they play out.
• Keep natty, oil positions.  Sell my natty pipelines and producer if we get a boom and their EV/EBITDAs go to unreasonable levels.
• Need to think about when I'd sell my tin miner.  Whats an unsustainably high price for tin?   [slide 18]

Every year its one or two themes that give the majority of my returns, and I don't know what they'll be till they play out.

Its been a tough year, working full time while trading has tired me out.

This is year 3 of the bull market (2022 bear).  Or year 5 if we measure from the 2020 covid crash.  The cycle will turn, maybe 2026, probably 2027.  The next bear will not be like 2008:

• It may be a real recession with nominal growth (1990 or 2001), or
• It may be a stock market correction with no recession (a slow motion 1987), or 
• It may be World War III (-10% GDP while printing fuckloads of money).  

We'll see as we move forward.  Cross the river by feeling the stones.  Just keep swimming.

Bought Oil, Sold Gold

A few hours after my previous post, Hedgeye's trading signal on oil changed to bullish trend. I've been waiting for months for this, so I bought a whole lot of oil stocks.  From 5% to 15%.  Risky, because its overbought and the signal can always flip back, but now is as good a time as any.

I still think we are in a decade of inflation.  I expect oil to maintain its price for one or two years, then explode in 2025 or 2026.  Like Uranium now.  Meanwhile, I'm paid to wait as oil companies gush cash (at 2023 oil prices) with generous dividends or buybacks.  For context, after peaking in 2022, the oil price hovered between $70-90 last year:

CNQ is a Canadian oil sands producer with long-life reserves, profitable, with generous dividends and share buybacks:

In 1Q24 they target to reduce net debt to 10 billion, after which they'll return 100% of free cashflow to shareholders.  I estimate either doubling dividends, or more than doubling share-buybacks.  Annualising their 9M23 profits, they are trading at a PE of 13.

Acker BP is a Norwegian O&G producer, that is still paying down debt but still also pays dividends:

Its trading at 12X 2023 earnings.

Var Energy is a smaller Norwegian producer, from Modern Investing Substack.  Although they pay dividends, they are a growth story, aiming to increase production by 50% by 2025.  Its trading 8 times 2023 earnings.  This company has more operational risk. 

The risks are politics and ESG.  Norway's district court overturned approval for several oil projects. While Canada will introduce a carbon tax.

Also sold my gold I'm as no longer expecting a recession.  And I need cash to buy stocks.

Quick Updates: Mapletree Commercial Trust and Gold

Mapletree Commercial Trust owns a popular mall and 2 business parks in the southern part of Singapore.  I bought a small 2-3% position during the 2020 crisis, but never had a chance to buy more.  Turns out to be lucky.  They recently announced a disastrous merger to bail out their HK based sibling.  I don't like the new properties injected (office and discretionary retail), and its too small a position to investigate all these properties scattered around Asia.  I sold it today, taking a small 18% profit, excluding dividends.

For me, its changed from a "buy-and-hold-forever" stock to a "buy-if-cheap" stock.  The number of good companies on SGX grows smaller day by day.

Bought a 4.5% position in gold when it was oversold the past few days.  Hoping to get up to 10%.

Sold my Gold. Stop Trading a while.

2 weeks after I build up my large 9% gold position, it hiccuped:

After that, I reduced the large position, losing ~USD 1K, and am now down to a manageable 3%.  Will probably sell it all.

The macro environment keeps changing too fast.  If I trade now I need to hold smaller positions for shorter times.  That doesn't suit me so I'll stop trading for now.  I trade best when I am willing to buy at times that no one else is - and thats not now.

The market is still reasonably priced, I'll just buy dividend stocks instead.

Bought Tencent and Gold

Took advantage of last weeks China stock turmoil to buy a 2% position in Tencent.  Bot 200 shares at HKD 460.20/share.

My reasons for buying:

• It owns the omnipresent WeChat platform.   The company is a monster with its tentacles stretching throughout China's technology ecosystem.
• Its reasonably cheap, at under 30X earnings with 15-20% growth and no net debt.

I am keeping the position to 2% because this stock can go to zero:

• The VIE structure
• Geopolitical risk.  How much are any China shares worth if missiles start flying over Taiwan or the South China Sea?

Also bought a big position in GLD, now 9% invested.  I consider gold to be a currency like USD or SGD, so can hold a lot of it.  Expect it to do well with rising inflation over the next few months/quarters.

I'm now almost 100% invested:

The holdings:

Why I want to buy Gold

 Gold may have stopped falling:

In the coming years, I expect periods of high inflation like in the 40's or 70's.  Gold serves as a decent inflation hedge, even if its not a great one:

Source: Bloomberg: More Previous than Gold.  Copper is the better inflation hedge.

In the coming quarters, I expect a lower q-on-q growth rate.  Gold does well when growth slows.  One caveat is that even through the growth rate should be slower, GDP growth itself should still be high (mid-to-hight single digits).

In the next few months I think there's a good chance of a market correction.  When market exuberance hits slowing growth.  Think it'll be a small correction like Dec 2018, not a crash like 2020.  Gold hedged against past market corrections well.  I put the chances of a correction this quarter around 50:50.

Gold is the best bet for me now.  Copper may be a better inflation hedge long term, but does badly with slowing growth.  Gold miners will go up more than gold over several quarters, but won't hedge against a correction.  So just hold the shiny yellow stuff paper.

I bought a small 2% position nought during last month's shakeout.  Right now its hard to buy more, its always overbought.  Got a feeling it won't be oversold for a while.

Lots of reasons to buy it.  No reasons not to.  This is my only high conviction trading/investment idea now.

Does Paper Gold hedge against stock market corrections?

Gold is an unprintable zero-yield currency.  So it should do well when real interest rates fall, or when they are expected to fall.  Like in a stock market correction.  Lets check the behaviour of GLD in past corrections.

Since GLD's history only goes back to 2004, we start in 2008.  The chart below covers the the 17-month bear market from Oct 2008 to Mar 2009.  S&P 500 (the purple line) was down 55%, while GLD (the candlesticks) was up 40%.

It wasn't smooth. GLD had a vicious 7-month 1/3rd drawdown, followed by a swift 4-month 50% recovery, bringing it back to where it started the drawdown. 

Why did it fall?  Interest rates were falling throughout this period, but there was a pause from May to Sept 08, corresponding to GLD's fall:

Source: MacroTrends Federal Funds Rate - 62 year historical chart

Flat rates would have stopped gold rising, but why did it fall?  Probably due to the panic, with funds needing to liquidate anything they could.  No one knows, but the important thing is that it did.  How would you buy-and-hold or trade through this?

Next we have a series of smaller corrections.

• A brief two-month 16% S&P 500 correction from May-June in 2010, shown by the dotted rectangle below.  GLD up ~3%.  Its too short a time for the chart to mean anything.  And this was within a wider multi-year gold bull market.

• A more substantial 5-month 19% S&P 500 correction from May-Sept in 2011.  GLD was up 4%.  We can see GLD's big spike as the stock market corrects, but GLD's final red candle has it falling 9% in a week.  Excluding this fall, GLD was up 13%. 

• Again, we can see how hard it is to trade or buy-and-hold.
• After the above spike, gold entered a 7 year bear market.  We only get one stock market correction in this time, 3-month correction from Nov 2015 to Jan 2016.  GLD exploded when the market dived:

• The 3 month 2018 bear market from Sept to Dec 2018.  GLD was up 3-4%, and a lot less volatile than the S&P 500 which was down 20%:

• With hindsight, the above was the beginning of a new bull market in gold.  Which we may still be in now.

• GLD fell with everything else in the 2020 crash.  It was down 7% vs the S&P's 33%.   With a maximum drawdown of 8%, it held up ok.

Conclusion

On average, GLD has risen during small corrections.  But not during large bear markets or liquidity crises.

I'm expecting a short correction in the second half of this year.  Like 2018 or 2015-16.  I'm thinking of going long gold.  The odds are on your side if you buy gold before a (brief) downturn.  But the charts above give some idea of the risks involved.  2015-2016 in particular shows how dangerous it can be to be early.

Bought Gold (AAAU)

Have bought 10% gold in my portfolio, or around SGD 80k.  Average price is USD 17.058.

I am holding the Perth Mint Physical Gold ETF (AAAU).  It is backed by the West Australian State Government, and (theoretically) allows retail investors to redeem gold.  GLD only allows you to redeem 100,000 shares, and the gold is stored with HSBC.

Day to day AAAU moves in line with GLD.  It has a lower expense ratio (0.18% compared to 0.4%), so it degrades less:

AAAU is liquid enough to buy or sell occasionally, but if I was short term trading, I would use GLD.

Why buy gold?

• Its in a long term uptrend, since late 2018
• It will do well in a deflation environment (recession this year), and with stagflation later (inflation from money printing but no growth).
• I am uneasy buying long term Treasuries with rates so close to zero.  We do not know if the Fed can allow negative nominal rates.

The time to sell will be when we get expectations of economic growth.  No sign of that now.  I may hold this for months, quarters, or even years.

Gold is money that can't be printed.  Before I become a die-hard gold bug and doomsday prepper, I remind myself of the risks:

• Paper gold fell in the March panic.  Everything fell against USD and physical gold.
• There is a constant counter-party risk: you never know if you can redeem until you do it.
• When we start getting real economic growth again, gold once more becomes a 'barbaric relic'.

For the rest of my portfolio, I am still waiting for the current bear market rally to die before I begin to buy.  May be waiting a long time.

Sold Gold Companies, TLT, bought GLD

https://www.investingnote.com/posts/1862353

Shaken out - can't trade such a volatile market.

From now I post my trades in InvestingNote.  I will post thoughts here that require longer writing.

Gold Royalty Companies

Gold financing companies are a leveraged play on gold prices.  These companies sponsor gold miners and receive future streams of gold royalties.

A brief look at the 4 major royalty companies:

Silver Wheaton

Only 52% of their 3Q19 revenue was from gold, with 46% from silver.  Didn't bother to look any further.

Franco Nevada Corporation

Franco Nevada is a large company, with 56 producing streams, plus 237 in exploration & development.  (This excludes another 81 energy streams - are they becoming so big they have diffiiculty funding sizeable precious metal streams?).  2/3rds of their 3Q19 revenue is from gold.

They are well diversified.  The two largest projects make up 26% of revenue, the largest 4 make up 42%.  Half their revenue comes from Latin America.

Debt is roughly 2 years' CFO.

For valuation, TTM EV/EBIDTA is 37 (at a stock price of USD 99).  Very expensive.  If I annualise their latest 3Q19 earnings (due to the gold price being higher in the last quarter), EV/EBIDTA is a more reasonable 24.  This shows how leveraged to the gold price this type of company is.

Correlation with gold price: Its daily return has a correlation to GLD of 0.65  over the past 10 years, and 0.73 over the past 6 months.

Royal Gold

Another large company.  They have 7 producing royalty streams, plus 35 producing royalty interests.   78% of their 1Q20 revenue is from Gold.  

They are conservatively geared: debt is 60% of CFO.

They are very concentrated: Their top two streams make up 44% of revenue, and the top 4 make up 65%.  41% of their 1Q20 revenue is from Canada, followed by 22% from Chile. 

Based on annualised 3Q19 earnings, EV/EBIDTA is 22 (at USD 118 stock price).

Its daily return has a correlation to GLD of 0.65  over the past 10 years, and 0.54 over the past 6 months.

Sandstorm Gold

A mid-tier company, with 23 producing streams, plus 167 in exploration & development (appendix iii).  At least 2/3rds of their net income was from gold in 2Q19.

They are conservatively geared: debt is slightly over 1 year's CFO.

There is some concentration risk.  Their largest 2 projects make up over 30% of CFO, and the largest 4 make up nearly 60%.

A large boost in gold production is expected in 2022:

This projected increase is from their Hod Maden mine in Turkey.  They have a lot riding on one project.  There is execution and political risk here, with a lot of upside.

Based on annualised 3Q19 earnings, EV/EBIDTA is 15.6 (at a stock price of CAD 6.92).

Its daily return has a correlation to GLD of 0.57 over the past 10 years, and 0.69 over the past 6 months.

When do we buy gold?

Gold goes up when interest rates go down.  Because it reduces the opportunity cost of holding (interest bearing) cash.

Gold is the Anti-Dollar.  You buy it if you think USDs are going to be worth less in future.  And you would hoard it if we had negative interest rates.

I see gold as a way to short the S&P 500.  If it has another sharp sell off, like in 4Q 18, the Fed will cut and gold will go up.  Gold is uncorrelated with the stock market (GLD and SPX have a correlation coefficient of -0.29 over the past 10 years, and -0.03 over the past 6 moths).

I've bought a small amount of FNV, RGLD and SANDS two nights ago.  Altogether makes up 2% of my portfolio.  I may increase it slowly, later.  This is a trade with a 6-12 months timespan - I do not want to hold gold as a long term investment.

Some links:

1) https://www.stockgumshoe.com/reviews/extreme-value/solving-ferris-extraordinary-upside-in-rare-13-gold-stock-tease/
2) https://seekingalpha.com/article/4231139-skin-game-key-differentiator-capital-intensive-sectors