Get the Latest Investment Ideas Delivered Straight to Your Inbox. Subscribe

Great Opportunity to Put Money to Work Today in the Precious Metals Space

Share on Stocktwits

Source:

Kevin C. Smith Tavi Costa In an Oct. 1, 2021, broadcast, Crescat Capital's Portfolio Manager, Tavi Costa, and Chief Investment Officer, Kevin Smith, argued that precious metals offer investors incredible value, protection, and growth during periods of economic toil like what we are experiencing globally today and that gold and silver prices are poised to take off from their current lows.

Crescat Capital Portfolio Manager Tavi Costa began the "Crescat Gets Activist on Gold & Silver" broadcast by showing how the U.S. Federal Reserve is currently "boxed in," in that it cannot act to improve one current problem in the country's economy without worsening another.

For instance, according to the Dallas Fed Manufacturing Index, business activity is declining whereas prices are rising, a divergence that occurred before the global financial crisis. If the Fed tries to improve one, it will worsen the other.

Precious metals do well during periods like this, in a "stagflationary, interest rate-repressive environment." — Kevin Smith

The same divergence is seen with Fed purchases of Treasury Inflation-Protected Securities (TIPS), which are decreasing, and the U.S. 10-year break even rates, which are increasing. The former affects the latter because the Fed owns about a quarter of outstanding TIPS. However, as the Fed has been reducing purchases, the inflation expectation numbers have been rising.

Kevin Smith, Crescat Capital's Chief Investment Officer, addressed inflationary pressures around the world. He reiterated that the Top 5 market cap stocks in the U.S. are about 40% more overvalued than they were at the peak of the tech bubble and this is concerning because those valuations are unsustainable.

At the same time, he noted, the Standard & Poor's (S&P) 500 appears as though it reached the top, given it broke the 50-day moving average support. 

"It looks to us like there continues to be further weakness ahead in the stagflationary environment that we see, with growth slowing at the same time as we have inflationary pressures rising," Smith said. The U.S. Personal Consumption Expenditures Price Index indicated that inflation again rose during October.

"What a great opportunity to be putting money to work today in the precious metals space." — Kevin Smith

The likely impending stagflation is a global problem, Smith added. Recently Eurozone inflation hit 3.4%, its highest level in 13 years. In Germany, real yields on 10-year bunds are -4.31, near the all-time low.

Along with inflation rising globally and U.S. stocks at record-high valuations, the Federal Reserve is tapering and China is in a type of credit collapse. Given all of these macroeconomic factors, Smith said that a market crash is possible though unlikely.

"There are serious risks in the marketplace today for that type of action," he said, adding that Crescat Capital is well positioned to not only endure such an event but, also, perhaps make money during it.

Precious metals, during periods like this, of "stagflationary, interest rate-repressive environment," do well, Smith said. "What a great opportunity to be putting money to work today in the precious metals space."

Costa noted that the intrinsic value of precious metals today "is incredible" relative to the U.S. monetary system and related policies.

Given the attractiveness of precious metals in a macroenvironment like the one we are in now, Smith noted, Crescat Capital continues to use them as a primary hedge against inflation and deep valuations. Costa added that, in his opinion, his firm should be bolstering its precious metals positions because gold and silver are currently so oversold.

The two experts purported, and presented data that suggest, a turnaround and significant rally of precious metals prices are imminent. For one, gold sentiment, according to the Hulbert Financial Digest, is incredibly negative, and periods of extreme sentiment tend to mark a gold bottom.

"We've had a pullback in the last couple months that I frankly believe is coming to an end because this whole inflationist transitory narrative is really starting to shift and people are starting to realize that inflation really is a problem here. Gold can do well in a deflationary environment, too," Smith said.

As for silver, it seems to be on the verge of a breakout, as indicated by its current position and moves historically relative to the S&P 500's commodities and to real rates. Also, asset outflows in two silver miner exchange-traded funds are three times what they were at the pandemic lows.

"I do think [silver] is an incredible valuable asset and a macro asset that fits exactly in in this narrative of the issues that we're seeing in the monetary system along with this green revolution that could potentially drive the demand for silver as well," Costa said.

Crescat Capital Portfolio Manager Tavi Costa began the "Crescat Gets Activist on Gold & Silver" broadcast by showing how the U.S. Federal Reserve is currently "boxed in," in that it cannot act to improve one current problem in the country's economy without worsening another.

For instance, according to the Dallas Fed Manufacturing Index, business activity is declining whereas prices are rising, a divergence that occurred before the global financial crisis. If the Fed tries to improve one, it will worsen the other.

The same divergence is seen with Fed purchases of Treasury Inflation-Protected Securities (TIPS), which are decreasing, and the U.S. 10-year break even rates, which are increasing. The former affects the latter because the Fed owns about a quarter of outstanding TIPS. However, as the Fed has been reducing purchases, the inflation expectation numbers have been rising.

Kevin Smith, Crescat Capital's Chief Investment Officer, addressed inflationary pressures around the world. He reiterated that the Top 5 market cap stocks in the U.S. are about 40% more overvalued than they were at the peak of the tech bubble and this is concerning because those valuations are unsustainable.

At the same time, he noted, the Standard & Poor's (S&P) 500 appears as though it reached the top, given it broke the 50-day moving average support. 

"It looks to us like there continues to be further weakness ahead in the stagflationary environment that we see, with growth slowing at the same time as we have inflationary pressures rising," Smith said. The U.S. Personal Consumption Expenditures Price Index indicated that inflation again rose during October.

The likely impending stagflation is a global problem, Smith added. Recently Eurozone inflation hit 3.4%, its highest level in 13 years. In Germany, real yields on 10-year bunds are -4.31, near the all-time low.

Along with inflation rising globally and U.S. stocks at record-high valuations, the Federal Reserve is tapering and China is in a type of credit collapse. Given all of these macroeconomic factors, Smith said that a market crash is possible though unlikely.

"There are serious risks in the marketplace today for that type of action," he said, adding that Crescat Capital is well positioned to not only endure such an event but, also, perhaps make money during it.

Precious metals, during periods like this, of "stagflationary, interest rate-repressive environment," do well, Smith said. "What a great opportunity to be putting money to work today in the precious metals space."

Costa noted that the intrinsic value of precious metals today "is incredible" relative to the U.S. monetary system and related policies.

Given the attractiveness of precious metals in a macroenvironment like the one we are in now, Smith noted, Crescat Capital continues to use them as a primary hedge against inflation and deep valuations. Costa added that, in his opinion, his firm should be bolstering its precious metals positions because gold and silver are currently so oversold.

The two experts purported, and presented data that suggest, a turnaround and significant rally of precious metals prices are imminent. For one, gold sentiment, according to the Hulbert Financial Digest, is incredibly negative, and periods of extreme sentiment tend to mark a gold bottom.

"We've had a pullback in the last couple months that I frankly believe is coming to an end because this whole inflationist transitory narrative is really starting to shift and people are starting to realize that inflation really is a problem here. Gold can do well in a deflationary environment, too," Smith said.

As for silver, it seems to be on the verge of a breakout, as indicated by its current position and moves historically relative to the S&P 500's commodities and to real rates. Also, asset outflows in two silver miner exchange-traded funds are three times what they were at the pandemic lows.

"I do think [silver] is an incredible valuable asset and a macro asset that fits exactly in in this narrative of the issues that we're seeing in the monetary system along with this green revolution that could potentially drive the demand for silver as well," Costa said.

[NLINSERT]

Streetwise Reports Disclosures:

1) This is contributed content from Crescat Capital compiled by Doresa Banning for Streetwise Reports LLC. Doresa Banning provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None. Her company has a financial relationship with the following companies referred to in this article: None.

2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.  

3) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

4) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.  

Important Crescat Disclosures Provided by Crescat Capital 

Please read Crescat’s important disclosures.

Nothing herein should be construed as personalized investment advice or a recommendation that you buy, sell, or hold any security or other investment or that you pursue any investment style or strategy.

Case studies are included for informational purposes only and are provided as a general overview of Crescat’s general investment process, and not as indicative of any investment experience. There is no guarantee that the case studies discussed here are completely representative of Crescat’s strategies or of the entirety of its investments.

Crescat has compiled its research in good faith and while it uses reasonable efforts to include accurate and up-to-date information, it is provided on an “as is” basis with no warranties of any kind. Crescat does not warrant that the information on this site is accurate, reliable, up to date or correct. In no event will Crescat be responsible or liable for the correctness of any such research or for any damage or lost opportunities resulting from use of its data.

You should assume that as of the publication date, Crescat has a position in the securities discussed and therefore stands to realize significant gains in the event the price of security moves. Following the publication date, Crescat intends to continue transacting in the securities, and may be long, short, or neutral at any time.

Want to read more about Gold and Silver investment ideas?
Get Our Streetwise Reports Newsletter Free and be the first to know!

A valid email address is required to subscribe
Latest Streetwise Live! Show