Tavi Costa: Excited for Gold & Mining Stocks Right Now
Tavi breaks down his bullish thesis on gold. He says, “The total debt to GDP and the current money supply compared to gold above ground is distorted. Eventually, we will have destruction with fiat currencies; therefore, holding gold as insurance is prudent.” The implied volatility of gold is currently near all-time lows. They think gold prices will continue to move higher as the US is close to the top of the economic cycle. He cautions that yield curve inversions are happening worldwide and not just in the United States. His overall strategy is to look at comparisons with historical trends and for value opportunities in mispriced assets.
The big picture is in the trade imbalance between the United States and China. China has a lot of debt relative to GDP as the credit growth there has been tremendous. This imbalance will eventually cause issues to their currency and likely a devaluation. Lastly, there is evidence for declining exports possibly due to the tariffs.
No model works perfectly, but if you combine several, you can figure out where you are in the market cycle. This may cause you to be early on plays but gives you a broad overview of the markets which is useful for finding the contrarian view.
Record reliance on central banks by investors tends to happen when we are late in the cycle. Politics is ramping up with election season coming, and inflationary issues could begin to play out.
Time Stamp References:
0:30 – Tavi’s bullish thesis for gold.
3:40 – US near the top of their economic cycle.
6:00 – Outlook for China and trade.
8:30 – Pressure on China to devalue.
12:30 – Combining indicators and models.
16:00 – Examining historical data for trends.
20:00 – Investors are relying on central bank policies.
21:00 – Socialist platforms could lead to inflation.
Talking Points From This Week’s Episode
• Eventually, the gold bug mentality will be correct.
• Socialist politics could cause inflationary issues.
• Low yields are one reason for low gold equity performance.
Otavio (“Tavi”) Costa is Global Macro Analyst for Crescat Capital. He has been an analyst on Crescat’s investment team for more than five years with a focus on global cross-asset research. “Tavi” built Crescat’s macro model that identifies the current stage of the US economic cycle through a combination of 16 factors. His research has been featured multiple times in financial publications such as Bloomberg, The Wall Street Journal. Tavi is a native of São Paulo, Brazil and is fluent in Portuguese, Spanish, and English. Before joining Crescat, he worked with the underwriting of financial products and in international business at Braservice, a large logistics company in Brazil. Tavi graduated cum laude from Lindenwood University in St. Louis with a BA degree in Business Administration with an emphasis in finance and a minor in Spanish. Tavi played NCAA Division 1 tennis for Liberty University.