Trade Alert: 3 Stocks to Sell

Well, that wasn’t fun…

It seems that after the torrid run that gold has enjoyed over the past two months, a pullback was inevitable. We certainly got one Tuesday, as both gold and silver sold off aggressively. The SPDR Gold MiniShares (GLDM) was down over 6%, and the iShares Silver Trust (SLV) was down over 8%.

As for the “why,” there was no obvious catalyst. Investors seem marginally less concerned that the trade war is escalating and marginally less concerned about inflation. But the more reasonable explanation is that the precious metals markets had gotten overheated, traders decided to take profits, and the selling snowballed.

Do we still have more selling in front of us?

Maybe.

Corrections of 10% or more are perfectly normal and healthy in a durable bull market. Given the massive run in metals this year, there are no doubt plenty of short-term traders looking to take their profits and cash out.

I expect that the longer-term bull market is very much intact, however, because nothing has fundamentally changed. The Federal Reserve didn’t suddenly wake up and discover a backbone. They’ve already begun slashing rates, making it abundantly clear that they don’t take their mandate to keep inflation in check seriously.

Congress and the White House didn’t suddenly discover the importance of fiscal rectitude. Last I checked we were still $37 trillion in debt and adding a good $1.7 trillion to that total this year. And unless I missed something, the trade war is still giving the rest of the world every incentive to ditch dollars and replace them with literally anything else.

I’d also add that most of the buying to this point has been driven by central banks. We still have yet to see widespread buying by regular mom and pop investors.

Ask yourself: How many people do you know that have been buying gold? I do this professionally and even I can only name a handful.

So, until I see compelling evidence to the contrary, my assumption is that the bull market in gold is still in effect.

Great!

What do we do about it?

We’re maintaining our permanent position in gold via GLDM. We’re up 103% since I first recommended it back in December 2023, and I believe we’ll probably see another 100% or more in returns before this bull market runs its course.

If your gold position has become outsized relative to the rest of your portfolio, by all means rebalance and sell it back down to target. As I wrote last week,

As much as I like gold in this environment, we should remember that the barbarous relic can be wildly volatile. In a “normal” base case scenario, I’d argue that keeping 5% to 10% of your portfolio in gold and precious metals is a reasonable allocation. I think it makes sense to go a little higher than that today, but I probably wouldn’t recommend more than 15%. That’s aggressive but not unreasonable, particularly if the rest of your portfolio is fairly conservative.

Time to Take Profits On Speculative Metals Plays

GLDM is a permanent position, but our positions in silver and gold miners are not. These were always designed to be more speculative, and they’ve done fantastically well for us. Even after Tuesday’s blow-up, we’re up 101% in Agnico Eagle Mines (AEM) in a little over a year. We’re also up 29% in Royal Gold (RGLD) and 55% in the iShares Silver Trust (SLV).

Unfortunately, we’ve hit our stop losses, so it’s time for us to move on.

Actions to take:

Sell your shares of Agnico Eagle Mines (AEM)

Sell your shares of Royal Gold (RGLD)

Sell your shares of iShares Silver Trust (SLV)

Before I sign off, let’s talk about the broader market.

I’ve made no secret of my belief that stocks are in a bubble and that I believe it will end badly. To quote Alan Greenspan, Fed chair throughout the go-go years of the 1990s, the market is “irrationally exuberant.” Valuations cannot be justified at current levels. It is absurd that Palantir (PLTR), a stock with a $400 billion market cap, trades at a P/E ratio of 585. There’s no reality in which that makes sense.

But I also know that bull markets don’t end because stocks are expensive. Valuation alone won’t do it. There needs to be a catalyst, such as a recession or a collapse in earnings.

We’re not there yet.

We may get there soon. For all we know, some unknown catalyst could hit tomorrow. But for now, we should maintain our exposure to stocks.

That’s going to wrap it up for today. Note that I have included the model portfolio below for paid subscribers.

To good investing,

Charles Sizemore