We have never come across a satisfactory way of quantifying overall financial market liquidity, but major trend changes in liquidity can be observed in the price action. In this regard, the price action in several markets points to a major downward reversal in the liquidity trend having occurred during the first half of October.

To further explain, too many markets reversed course during the first half of October for it to be a random coincidence. Therefore, during this period there must have been an underlying shift in something with the ability to pressure prices in diverse markets upward or downward. A shift in the liquidity trend is the most logical explanation.

A shift in the liquidity trend could explain why all the following happened within a 2-week period:

1) There were spectacular downward reversals in the prices of stocks focussed on Rare Earth Elements (REEs), indicating that the REE bubble — a bubble that was extremely profitable for us — has burst.

2) The prices of gold and silver rocketed upward and then reversed downward.

3) The gold mining indices/ETFs peaked in mid-October, two days after breaking above their 2011 highs, and then plunged.

4) The prices of platinum and palladium rocketed upward and then plunged.

5) After peaking during the second week of October, US Antimony Corp. (UAMY), a proxy for the antimony speculation, quickly lost about two-thirds of its value.

6) Bitcoin made a new all-time high and then reversed downward.

7) The German stock market, as represented on the following chart by the DAX, made a marginal new all-time high and then reversed course. The chart indicates that the DAX may be about to complete an intermediate-term topping pattern.

The most important market that is yet to show evidence of declining liquidity is the one that is being supported to the greatest extent by passive money flows: the US stock market as represented by the SPX. However, if a major liquidity trend reversal is underway then its effects should start to become apparent in the senior US equity indices by early next year at the latest. More generally, if a major liquidity trend reversal is underway then no market will be spared and the next several months will be a period in which to ‘play defence’.

[This blog post is a brief excerpt from a commentary published at www.speculative-investor.com on 9th November]

In the 15th October Interim Update, under the heading “The REE Bubble”, we wrote that all the REE-related stocks that we track except for Neo Performance Materials (NEO.TO) were now in bubble territory. This was not only because equity prices had gone parabolic, but also because the price gains in the stock market were not supported by price gains in the underlying commodities. We went on to write that the bull market possibly had years to run, but the risk of an intervening crash had become high. Therefore, we recommended that anyone with significant exposure to REE-related stocks who had not yet harvested meaningful profits, should do so right away. Our warning was well timed, because a crash began almost immediately.

The first of the following daily charts shows that MP Materials (MP), the largest (in terms of market capitalisation) stock in the REE sector and a stock that we use as a sector proxy, fell by 50% from its October high to last week’s low. The second chart shows the performance of USA Rare Earth (USAR), a stock that looked very expensive in early-September — BEFORE it tripled in price on the way to a blow-off top in October. USAR lost two-thirds of its value from its October high to last week’s low.

On average, the prices of the REE stocks on our radar screen fell by around 50% from last month’s high to last week’s low. The stock price of Neo Performance Materials (NEO.TO) held up relatively well and suffered a peak-to-trough decline of ‘only’ 32%, because it didn’t rise by as much in the lead-up to the top and because its current valuation is underpinned by current revenue and earnings.

The way these things usually go, the initial phase of the crash will be followed by a rebound to a lower high, a decline that tests or breaches the initial low, and then several months of base-building. After that, the next leg of the bull market possibly will begin. Note that last Friday’s price action suggests that the initial phase of the crash is complete, so over the weeks ahead there probably will be a rebound.

With commodity-related stocks, we like to do most of our buying during base-building periods and to scale-out during the parabolic rallies.

[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.