It’s a Waiting Game Now!

Even if you’ve seen it a thousand times before, it’s still amazing to witness the market’s rapid changes in sentiment. In a matter of days, investors have flipped from fearfully risk-off to stunningly risk-on, leaving safety hedges like gold behind in favor of “momo” plays, especially in large-cap technology stocks.

Seasoned investors understand that this is temporary, but it can be frustrating nonetheless. It was baffling to see amateur traders react with panic to financial media headlines about the federal debt default risk only to turn massively bullish on the assumption that a deal is inevitable and possibly imminent.

After all, who needs a debt ceiling deal when the government can just move the goalposts? In a shocking but not surprising development, Treasury Secretary Janet Yellen saw that politicians on Capitol Hill weren’t likely to get a debt limit reduction deal by her fiscal cliff “X-date” of June 1, so she simply changed the due date to June 5.

Meanwhile, you can’t get a straight answer out of any politician amid the debt ceiling crisis. Joe Biden has called the negotiations “promising” on multiple occasions, but Republican Representative Patrick McHenry is saying that the debt ceiling talks are “up and down.”

Nevertheless, the market has become so forward-looking that it has already priced in total failure followed by resounding success and relief before any of this has actually happened. Consequently, the latest market move has been a frenzied crowding into everybody’s favorite risk-on assets: famous tech names with bloated valuations.

At the top right of this chart, we can see a visual representation of just how crowded the large-cap tech trade has become. The S&P 500 technology sector currently trades 3.23 standard deviations above its 50-day moving average, which is the sector’s most overbought reading since January 2004.

This is taking place despite the lack of a debt ceiling agreement heading into a holiday weekend, a deeply inverted yield curve, and ultra-tight credit conditions in which banks are reluctant to lend money to small businesses and individuals… but keep in mind that the market is always capable of ignoring fundamental considerations in the short term.

For forward-thinking, long-term investors, gold is still the best deal in the financial markets. It’s hard for most amateur traders to see this because gold isn’t the breakout superstar of the moment like tech stocks (especially A.I.) are right now.

Admittedly, it’s hard to resist joining the crowd on its journey to dizzying heights. The top 10 largest stocks in the world (Apple, Alphabet, Nvidia, Microsoft, etc.) are now worth a combined $13.6 trillion. In a bizarre twist, Nvidia’s market cap is now more than 6x the size of Intel’s even though Intel still has nearly twice Nvidia’s annual revenue.

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    This is why it’s futile to wrack your brain trying to make sense of short-term market moves. It’s all about sentiment, fear and greed, and confirmation bias. Remember that joining the crowd is like joining a gang with no loyalty because they’ll leave you high and dry at any given moment in pursuit of the next shiny object.

    Ironically enough, that next shiny object could easily be gold. Just a whiff of fear would turn the tide against high-flying tech stocks and toward something more grounded. Gold will sooner or later serve its purpose as a rock-solid, non-correlated asset that can withstand anything and everything over the long term.

    Even so, financial traders are obsessed with round numbers and are frustrated that gold hasn’t broken through the $2,000 level yet. This story will end the same way it did at $500, $1,000, and $1,500: the amateurs will get bored and walk away from gold right before the big breakout occurs.

    Needless to say, I’m still bullish on gold despite the sensationalist headlines. Those headlines and retail traders’ responses to them have reaffirmed my position on gold as a sensible all-weather portfolio holding.

    If you have an asset that’s been around and retained its value for thousands of years, you don’t have to worry about the latest, fully manufactured debt ceiling crisis. Sentiment will shift, and so will short-term prices, but gold offers what the price chasers inevitably miss out on: something tangible, fungible, and eminently reliable.

    Prosperous Regards,
    Kenneth Ameduri
    Chief Editor,

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