[This blog post is an excerpt from a commentary published at www.speculative-investor.com on 26th October]

After the close of trading last Thursday, Newmont Mining (NEM), the first senior gold producer to report quarterly financial results, released its results for Q3-2025. As expected, given the high average gold price and gold/oil ratio during the quarter, the results were extremely good and included record-high quarterly cash-flow. The company earned US$1.71/share during the quarter, which is US$6.84/share annualised. This means that despite this year’s large gain in its share price, NEM is being valued by the stock market at only about 12-times trailing earnings. We expect that it will be a similar story for most senior and mid-tier gold producers.

Further to comments in our lithium discussion earlier in today’s report, the fact that earnings are high and P/E ratios are low in the gold mining sector does not preclude the possibility that a long-term price top is forming. On the contrary, in the commodity realm, financial results and valuations tend to be most inviting near the ends of bull markets. However, the signs that normally are seen near the end of a gold-mining bull market are not currently evident. Before we get to that, the long-term underperformance of gold mining stocks relative to gold bullion is worth a brief revisit.

The main reason that gold mining stocks, as a group, underperform gold bullion over the long-term is that just as monetary inflation and the associated interest-rate manipulation promote malinvestment in the broad economy, they do the same in the gold mining sector. The difference is that booms in the gold mining sector generally coincide with busts in the broad economy, and vice versa.

As an aside, don’t be misled by the performances of equity indices such as the SPX into thinking that the US economy is in the boom phase of the economic cycle. Due to the domination of passive investing, the performance of the stock market now has very little to do with the performance of the broad economy. In the US economy over the past few years there have been booms in a small number of sectors, chief among them being AI and the related infrastructure, but the economy as a whole has been in the bust phase. Busts usually, but not always, culminate in a recession, with a surge in monetary inflation associated with the official response to the recession sowing the seeds of the next boom.

In the gold mining sector, the malinvestment that eventually stems from a boom involves ill-conceived acquisitions and project developments, the costs of which get written-off years later during the bust phase. The result is wealth destruction over the long-term.

A point we want to make today is that at this stage of the gold sector’s boom there are no signs of widespread malinvestment. On the contrary, NEM and other large-scale gold producers still appear to be more focussed on cost reduction and cash-flow maximisation than on growth, especially ‘growth at any price’. This suggests to us that the end of the boom phase is not imminent.

The end of the boom is not imminent, but the intermediate-term upward trend that began late last year is almost certainly over.

[This blog post is an excerpt from a recent commentary at www.speculative-investor.com]

Based on their extreme valuations, AI-focussed equities are in a bubble and have been for a considerable time, but what about the investments in AI infrastructure such as datacentres, semiconductors, servers and the associated power supplies? Does the rapid rate of investing in AI-related hardware, software and buildings constitute a bubble?

We suspect that it does, but at this time there is no way of knowing. Investment that turns out to be malinvestment always is based on forecasts of future demand that prove to be far too optimistic, but not all optimistic forecasts of future demand turn out to be wrong.

One sign that the investment underway in AI-related hardware and software constitutes a bubble is the creative ways that are being used to fund it. For example, the following meme reflects how three of the most important companies in the AI world recently funded each other. NVIDIA invested US$100B in OpenAI, which used the money to buy server capacity from Oracle, which used the money to purchase chips from NVIDIA. This circular transaction boosted the equity valuations and the revenues of all three companies involved.

Our 1-2-year bullish outlooks for some industrial commodities, including natural gas, uranium, copper and tin, are linked in part to the AI buildout. Therefore, could the bursting of the AI bubble cut-short the cyclical commodity bull market?

We don’t think so, for six reasons.

First, even if the stock prices of AI-focussed companies were to crash soon, the investment in the associated AI infrastructure probably would add significantly to commodity demand for at least another two years. This is based on the datacentres already under construction and planned to commence construction in the near future.

Second, there are other important potential drivers of increased commercial demand for commodities, chief among them being the rebuilding of Ukraine, the rebuilding of Gaza and the construction of the massive Yarlung Tsangpo Hydroelectric Project in China.

Third, restrictions on international trade are likely to put upward pressure on commodity prices in some parts of the world, including the US, by making the international trading of commodities less efficient. For example, whereas previously it would have made sense to import a commodity rather than produce it locally, due to tariffs it could make more sense to produce locally. However, it generally takes several years to build a new mine and the mine-building process itself consumes large quantities of commodities.

Fourth, the combination of a weaker US$ and increased government spending around the world will both support the commercial demand for commodities and boost the speculative demand for commodities as an inflation hedge.

Fifth, even though investment in ‘renewable’ energy such as solar and wind is now being de-emphasised or actively discouraged by the US government, there continues to be massive investment in these forms of energy around the world and especially in China. This will boost the commercial demand for industrial metals.

Sixth, the gold bull market of the past few years projects a commodity bull market over the next few years (commodity bull markets are just gold bull markets that have broadened).

In our opinion, the rise in the prices of some commodities over the past six months is just a taste of what’s to come.

[This blog post is an excerpt from a recent commentary published at www.speculative-investor.com]

Indicators of sentiment suggest that the US economy is weak, while macroeconomic indicators such as GDP suggest that the US economy is doing fine. This difference between what most people perceive and the performances of economic aggregates such as GDP has been apparent for years, and can be explained as follows.

First, the reality is that people who are asset rich and/or cash rich have done extremely well over the past few years and continue to do so due to higher interest income and equity prices. They have increased their spending accordingly, boosting measures such as GDP in the process.

Second, there has been an investment boom associated with AI that has led to massive capital spending on datacentres. Everything that goes into building these new datacentres has added to GDP while doing very little, to date, to improve the lives or the job prospects of the vast majority of people. In fact, the datacentres are increasing the cost of energy and therefore the cost of living for the average person.

Third, the government has spent rapidly over the past few years and continues to do so, ensuring that there is plenty of ‘fiscal stimulus’ to boost the economic aggregates.

A result is that numbers such as economy-wide consumer spending look good, while for most consumers it feels like the economy is in recession or heading that way. The economy-wide numbers matter for the financial markets and for our analyses, but it’s important to understand why the perceptions of most people don’t align with these aggregates.

Overall, the economic indicators to which we pay attention point to an economy that is far from strong but at the same time is not yet weak enough to be put into the recession category. For example, the ISM New Orders Index (NOI) continues to be low enough to generate a recession warning signal without doing what it usually does after a recession gets underway in earnest: plunge below 40. This means that the NOI has been generating a recession warning for three years now without the overall economy entering official recession territory, which is something that has never happened before.

As we’ve noted many times in the past, something that should happen before a recession gets underway in earnest is a sufficient general widening of credit spreads to push the High Yield Index Option Adjusted Spread (HYIOAS) above its 65-week MA (the blue line on the following chart). HYIOAS generates the occasional false recession warning, which is what happened during the first quarter of this year, but in the past it has never failed to signal an actual recession. In other words, it generates the occasional false positive but no false negatives.

HYIOAS’s current message is that the US economy is not in recession.

The US economy therefore does not appear to be in recession right now, although it would not take much in the way of additional weakness to tip the scales decisively in that direction. This risk is a reason to hold a larger cash reserve than usual, but it is not a reason to avoid investments/speculations in commodities and commodity-related equities. As we’ve noted in the past, commodities and the associated equities performed very well during the bulk of the 1973-1974 inflationary recession (probably the best historical analogue) and also performed well during the first six months of the 2007-2009 deflationary recession.

[This blog post is an excerpt from a commentary posted at www.speculative-investor.com last week]

The senior US stock indices have trended upward with only minor pullbacks since April, leaving them very overbought by most measures and at their highest valuations in history. Furthermore, the Russell2000 Small-Cap Index is testing long-term resistance. At the same time, the economy is weakening under the weight of tariffs, regime uncertainty and many years of malinvestment, pointing to either slower earnings growth ahead or earnings contractions if the long-delayed recession finally arrives. Consequently, the current market situation seems precarious.

It is precarious, which is why our own accounts are now about 50% in cash. This is up from 30% in April-2025 and is the highest cash percentage we have had in many years. However, over the past 18 months we have steered clear of bearish speculations in our own accounts and with regard to TSI recommendations/positions (we have not added a stock-market-focussed put option to the TSI List since March-2024).

As an aside, we came close to adding an IWM (Russell2000 ETF) put option to the TSI List in July of this year, but for the option to be added the IWM price had to test resistance at US$230 before reversing downward. It ended up reversing downward from significantly below this resistance and then rebounded off support, prompting us to write (in the 11th August Weekly Update): “…note that a rise by IWM to resistance at $230 now would constitute an upside breakout and would NOT create a buying opportunity for IWM puts.” A week later we went on to explain: “…the small-cap-focussed Russell2000 ETF (IWM) finally attacked resistance at US$230 last week. The resistance has held for now, but the fact that IWM pulled back to support before attacking resistance makes it more likely that the resistance will be breached.” The resistance eventually was breached and a rise to the next important resistance at US$245 soon followed.

Our interest in equity-index-related bearish speculations diminished greatly after we fully understood the reality that with passive investing strategies having come to dominate the market, the traditional mix of equity market fundamentals such as corporate earnings and valuation had all but ceased to matter. In fact, valuation now works in the opposite way, in that the greater the relative overvaluation of a particular stock the larger the proportion of ‘passive’ money that will be allocated to the stock, driving its valuation even higher.

The situation is precarious, because at some point the system that is putting a relentless bid under the market and especially under the stocks with relatively large market capitalisations will go into reverse. At that point and with valuations in the stratosphere, there will be no value-oriented investors to ‘buy the dip’ and most people will be surprised at how far and how fast the market falls.

The system won’t go into reverse because valuations have become too high, because, as explained above, high valuations are not an impediment to demand if most of the demand is ‘passive’. It will go into reverse because the net flow of money into passive funds stops or simply becomes insufficient. This could happen due to the “boomer” generation withdrawing money from their retirement accounts or it could be the result of much higher unemployment (a recession).

Unfortunately, there is no way of predicting when the major reversal point will arrive. At this time we suspect that the overall bullish trend will continue until the end of this year (with a significant intervening correction), but it could continue for much longer than that. In the meantime, we plan to continue doing what we have been doing, which is 1) adjust our overall cash percentage based on short-term risk considerations and 2) find ways to profit on the long side that don’t involve turning a blind eye to the values of underlying businesses. Fortunately, there have been excellent opportunities in the commodity realm over the past 12 months and we expect that there will be many additional opportunities in this realm over the next couple of years.