The driving force behind the current speculative frenzy is none other than the AI-chip market leader, NVIDIA. Despite its recent impressive earnings report, the stock is trading at extremely high valuations of 65.6x and 32.1x trailing-twelve-month earnings and sales, respectively. This has pushed NVDA stock to trade an astounding 67% above its 200-day moving average, indicating a parabolic rise that is usually unsustainable in the long run.
The enthusiasm for NVIDIA stock is evident even among those who are not usually involved in the stock market, as conversations about it dominated weekend parties attended by the author’s family. Many retail investors are eagerly buying into the hype surrounding NVDA, mirroring the behavior seen during previous market bubbles.
While the AI bubble may be reaching its peak, the article points out an interesting contrast with the gold market. Gold, often seen as a safe haven asset, has been performing well despite being overshadowed by the stock bubble. The precious metal has seen a significant upleg, with prices reaching new nominal record highs, driven by strong demand and prevailing market conditions.
The disconnect between the performance of gold and gold stocks is highlighted, with gold stocks trading at levels last seen when gold was priced much lower. This presents an opportunity for a potential mean-reversion rally in gold stocks, especially considering the oversold conditions and excessive fear prevailing in the sector.
The article forecasts a potential surge in gold prices, driven by mean-reversion buying of gold futures contracts by speculators. Historically, such surges have led to significant gains in gold stocks, which could outperform and catch up to the price of gold. The overall sentiment towards gold stocks, as indicated by feedback patterns and investor behavior, suggests that a big mean-reversion rally may be on the horizon.
In conclusion, while the AI bubble may be nearing its end, the gold market presents an intriguing opportunity for investors looking to capitalize on potential gains in gold and gold mining stocks. The dynamics of the market, along with strong fundamentals backing the gold miners, indicate that a significant rally could be on the horizon. It will be interesting to see how these two sectors evolve in the coming months and whether the predicted mean-reversion rally in gold stocks materializes.
