Summary
Highlights
Régis Jankovici, founder of Luxavie, had predicted a significant upward movement in gold in spring 2024. This prediction proved accurate, with gold prices rising from 1900-2000 dollars to nearly 4400 dollars per ounce, a doubling in 18 months, representing an extraordinary surge not seen since the late 1970s and early 1980s.
In spring 2023, Régis also recommended diversifying into palladium and gold mines, which were then undervalued. This advice also proved very profitable, with gold mines almost doubling within a year and palladium gaining 50%.
Gold is often considered a hedge against geopolitical risks and inflation, and a protection against currency devaluation. Central banks' gold purchases and high national debts further fuel interest in gold. However, Régis challenges these common beliefs, stating that not all are accurate and that gold's valuation is complex due to a lack of intrinsic cash flows.
Régis argues that gold is no longer a reliable hedge against inflation. While a positive correlation existed in the 1970s, it has been weak or negative since 2018. During the post-COVID inflation surge, gold prices did not react, indicating that investor behavior has changed significantly, likely driven by the Federal Reserve's monetary policy and its perceived credibility in fighting inflation.
Contrary to popular belief, gold does not consistently protect against geopolitical risks. Examples include gold's short-lived rally after the Ukraine war, followed by a significant drop, and its inaction during major events like the Hamas attack on Israel. These events suggest that geopolitical instability does not consistently drive gold prices upward.
Régis emphasizes that gold prices are more closely tied to the Federal Reserve's monetary policy and interest rate expectations. Historically, the end of an interest rate hike cycle is an excellent time to buy gold, while the end of a rate cut cycle is a good time to sell. The current market anticipation of aggressive rate cuts by the Fed, possibly under a new Trump-appointed chair, is driving speculative gold purchases. Régis believes this expectation is overblown and could lead to market disappointment and a sharp correction in gold prices.
Several indicators point to irrational exuberance in the gold market: increased public interest (Google Trends at an all-time high, 'gold queues' at foundries), and even criminal activity targeting gold. Historically, market introductions of commodity companies at peak valuations, like Glencore in 2010, have signaled market tops. A recent IPO of a major unlisted gold mining company in China further reinforces concerns about a potential market peak.
Régis introduces a novel technical indicator based on fractal dimensions to measure market equilibrium. A 'simple' movement (fractal dimension close to 1, or specifically, below 1.30 for gold) indicates a significant imbalance between buyers and sellers, often preceding a market reversal. This indicator has accurately predicted major gold price downturns in 2008 and 2011, and it is currently flashing a warning sign.
Given these observations, Luxavie has significantly reduced its gold exposure in client portfolios, from as much as 25% to 5-7%, considering this a 'massive' reduction. Régis argues that the risk-reward ratio for gold is now very unfavorable. As an alternative, he suggests looking into copper.
Régis proposes copper as a more attractive investment. The copper-to-gold ratio, a critical economic indicator (copper is known as 'Dr. Copper' for its predictive power), is currently at a 20-year low. This low ratio, combined with factors like underinvestment in copper mining, growing demand from electrification and AI, suggests that copper is poised for a significant rally. Historically, troughs in this ratio have been excellent buying opportunities for copper.
Régis concludes by reiterating his changed stance on gold: while he was an early advocate for strong gold exposure, most factors traditionally used to justify gold investment (inflation, geopolitical risk) are no longer systemically valid. The Fed's monetary policy is the primary driver, and market expectations for rate cuts are likely to be disappointed. Therefore, significant profit-taking on gold positions is advised, with copper being a promising alternative due to its fundamental strength and historically low ratio against gold.