| | | What's Going on with Gold and Gold Stocks? | | By Jeff Brown, Editor, The Bleeding Edge | | |
This week came with another disappointment from the Federal Reserve. | | Once again, no change to the Fed Funds rate still sitting at the high end at 4.5%. Worse yet, Chair Powell indicated no action in September's FOMC meeting either. | | These politically driven decisions stand in stark contrast to the fall in inflation and continue to hurt the housing market, interest expense on U.S. debt, the markets (especially small caps), commercial real estate, economic growth, and household discretionary income. | | The FOMC decision also stands in stark contrast to the incredible progress being made in trade negotiations, which Chair Powell has used as an excuse for not taking action. | | In the last week or so, the U.S. put in place more balanced trade agreements with Japan, the European Union, South Korea, and others, which also included more than $2 trillion of additional foreign direct investment into the U.S. market. | | While we'll likely have some seasonal market volatility during the next four to six weeks, these developments are all bullish for the U.S. economy and the markets. | | And the level of investment in artificial intelligence infrastructure just continues to increase. Meta, Microsoft, Google, and Amazon are now on track to spend more than $300 billion this year. That's just four companies. And the projected spend for 2026 is even higher. | | Developments aren't slowing down, they're speeding up. | | I hope everyone is enjoying the last month of summer. We're definitely in for some exciting developments this fall. | | Jeff | | The Impact of Stablecoins on Gold? | | | Wondering what Jeff Brown thinks the growth of Stablecoins will have on the price of Gold? Should people be moving their money out of gold stocks? | | – Leslie V. | | | | Hi Leslie, | | | | The long and short of it is that we don't expect stablecoin growth to substantially impact gold demand or price, and that a well-diversified portfolio can benefit from both in different capacities… | | | As stablecoins go mainstream, it's natural to wonder how they'll affect traditional stores of value like gold. | | The short answer: We don't believe stablecoins will have a material impact on gold demand. | | Here's why… For thousands of years, gold has been the ultimate hedge against fiat currency debasement. Investors buy it not for yield or performance but for protection. Gold sits outside the system. | | Stablecoins, by contrast, are still tied to fiat – 99% of stablecoins are tied to the U.S. dollar (USD). Even though they use blockchain rails, their value is still pegged 1-to-1 to a currency that's slowly inflating. So while stablecoins offer speed, access, and programmability, they don't offer diversification. | | Holding stablecoins is just another way to hold dollars. | | That's why gold's role as a long-term store of value remains intact. | | […] | | Stablecoins and gold solve different problems. One offers utility. The other offers protection. | | And in today's environment of rising debt, persistent inflation, and geopolitical uncertainty, gold still has a place as part of a diversified strategy. | | | You can find the full response, insights into digital asset treasuries, and a quick take on the benefits of holding stablecoins versus holding Treasury bonds in last week's AMA right here. | | With regards to gold stocks, as opposed to gold itself, there are very different considerations for investors to consider. | | We've obviously been in a healthy bull market for gold over the last two years or so. That shouldn't come as a surprise, considering the reckless deficit spending by the U.S. government and a national debt exceeding $37 trillion. | | | | One might have thought that the rise in gold from around $2,000 to above $3,300 would have caused major gold stocks to soar. | | But that's not what happened. | | For example, a large gold mining company like Barrick Mining (B) is up only 25% since July 2023, and Newmont (NEM) is up only 37% over the same period. | | Perhaps even more surprising is that a gold royalty company like Franco-Nevada (FNV), with 90+% gross margins this year, is up only 12% over the same period. | | There are some brighter spots as we look at smaller gold companies that have a combination of mining and exploration. Kinross Gold (KGC), which has been a favorite of mine, is up almost 250% during that same window. | | But the nuance is that small gold exploration stocks will go up regardless of the gold price. Whether it is $2,500 or $3,500 an ounce, if they find a large deposit, their share price will soar. | | So, to your question, Leslie, about gold stocks, I'll share some general thoughts I have about what is going on right now. | | Large gold stocks and gold royalty companies in general appear to represent great value right now, and yet their share prices aren't rising accordingly. And in general, neither have their dividends. | | My interpretation of this is that there are two reasons for this odd dynamic. There is an institutional belief that gold is topping out. While fiscal deficits are still high, there is a clear initiative to bring them down by the current administration. | | The trade deals are getting done, foreign direct investment is skyrocketing due to trade negotiations and economic policy, and the U.S. dollar is on a path to strengthening compared to all other currencies. This will result in a lower gold price. | | The second reason is about sentiment. The reality is that different asset classes are far more interesting to institutional capital than "dirty and difficult" gold mining stocks. | | AI companies, hyperscalers, robotics, Bitcoin, semiconductor companies, digital assets, basically the companies and projects that I research and maintain in my Brownstone Research model portfolios, are far more interesting and have far more upside than gold stocks (or gold for that matter). | | For these reasons, it's hard for me to be bullish on large-cap gold stocks or royalty companies right now. The dividends are generally small, and there is a significant risk that they will drop when gold pulls back. | | But as I mentioned before, junior exploration companies with strong prospects could still be interesting regardless of a decline in gold prices. It is important to mention, though, that pure exploration companies are extremely high risk and are only recommended as a small percentage of anyone's asset allocation model. | | I appreciate the question, as this is an interesting subject that we don't usually have occasion to chat about at Brownstone Research. | | Humanoid Robot Voice Recognition? | | | Hello Jeff: | | I was wondering how Tesla and other mobile robot manufacturers will handle robot interactions with third parties. Say, if a neighbor shows up at your place, would your Optimus (when you get one) be programmed to recognize your neighbor's voice, or would it ignore the person? | | Suppose that person gave the robot a command that might cause harm or loss to you, would the robot recognize that fact and ignore the command, or refuse to comply? | | I'm guessing that until AI advances quite a bit, the safest way for Tesla to handle their retail robots is to set them up to answer only to the owner's voice and ignore all others. | | Any thoughts or info on how Tesla is handling this or will handle this aspect of their robots' programming? (I think they somehow need to incorporate Asimov's three rules of robotics.) | | Regards. | | – Robert F. | | | | Hi Robert, | | I think your instincts are correct. Much in the way that we have our own passwords to our laptops and our smartphones, our personal humanoid robots will have the same. | | After all, what is a humanoid robot? It's an intelligent computing system that happens to stand and move on two feet (or wheels). | | These systems are all being designed with a range of sensors, cameras, and multimodal language models with the ability to process and communicate in natural languages. | | So not only will "they" be able to employ voice recognition, but these systems will be able to use multifactor authentication, like voice recognition + facial recognition + a passcode/password. | | And you're also correct that the neural networks that act as the brain for these humanoid robots will be programmed with Asimov's three laws of robotics, in addition to Asimov's later "Zeroth" law, which states: | "A robot may not harm humanity, or, by inaction, allow humanity to come to harm." | | | | One thing I'm sure of, we won't have to wait much longer to see how the leading robotics companies address this issue as they move from early deployments to mass production of their humanoid robots. | | | | A "Forest of Algorithms"? | | | Hi Jeff, | | First of all, thanks for your great research. Your dailies are unbelievable. It's the only email I've been reading consecutively for years, never getting bored; always amazed by the depth and clarity. | | I was wondering about a company, MultiCortex AI. Their claim is that they are the first to have created a "Forest of Algorithms." A federated large language model platform integrating multiple AI systems into a unified framework. | | I was wondering if there is indeed something unique and/or revolutionary about their company? (As my understanding of what they offer is limited, to say the least). Or is it just another case of trying to capitalize on the hot AI market with catchy words? | | – Deborah B. | | | | Hi Deborah, | | This is one of those companies that I hesitate to write about, as I don't want to give it attention. | | There is almost no information available on its website about its technology while claiming to be "the world's most advanced AI operating system for servers." No white papers, no product descriptions, no system architectures, nothing. | | It appears that MultiCortex AI entered into a JV with a digital assets company, HUMBL, this April. Just as quickly, last month, the two companies terminated their agreement. HUMBL was supposedly taking $3 million of what it raised in a Reg A+ offering to invest with MultiCortex to build out their technology. | | If these companies are legitimate – and that's a big if – they are absolutely tiny and not well established. HUMBL has barely any revenue or business operations, for that matter. And MultiCortex may not even be a real operating company. It's hard to tell. | | There are red flags and warning signs everywhere. | | Are Concerns About Overheating EVs Misplaced? | | | Hi. Like what Tesla is doing. Lots of additional opportunities for use in the future. There's still a concern about the dangers of an EV in a hot climate. Misplaced? | | What's the status of the solid-state batteries? Longer range. Shorter charge times. Safer. | | Just curious. Thanks. | | – Russ B. | | | | Hi Russ, | It's been a while since we discussed solid-state battery technology in The Bleeding Edge. We did something of a deep dive into the current status of the technology as well as where we were at in terms of the next generation of battery technology in The Bleeding Edge – The Battery Graveyard. | | There's a lot of great information in that issue if you wanted to check it out. We did dig into what exactly makes solid-state batteries so desirable as an option for new battery tech as opposed to the dominant lithium-ion batteries that power not only most popular consumer electronics, like our smartphones, laptops, tablets, and electric vehicles (EVs), but also power tools, solar energy storage systems, and medical equipment. | | However, they are prone to relatively rapid performance degradation and are also vulnerable to overheating, fire, or even explosion when not properly stored, cared for, recycled, or disposed of… Something that has come up in conversation more often as EVs rise in prominence, as nearly all EVs run on lithium-ion batteries. | | Which makes it all the more unusual that battery technology has remained largely unchanged in the more than three decades since the lithium-ion battery's invention. | | Solid-state batteries – so named because they use a solid electrolyte to conduct ions between electrodes rather than the conventional liquid or gel polymer electrolytes – are often named as a possible alternative to lithium-ion batteries, especially in applications like EVs. In theory, they offer greater energy density, faster recharging, and better safety than cells with liquid electrolytes. | | As you point out, EVs equipped with solid-state batteries would be able to travel farther and longer on a charge … | | | [Lithium-ion] batteries simply don't retain as much charge, requiring more frequent charging. This goes on until we replace the device… or replace the battery. | | It's easy to understand something we experience every day. That's why investors – and consumers – are so hungry for the next battery technology. For years, the great hope has been solid-state battery technology. | | The majority of the approaches to solid-state battery technology involve either a lithium metal or silicon anode. | | The anode is the negative electrode where the energy is stored in a battery. When the anode is discharged, electrons flow out, providing power to the electronic device or electric vehicle. | | The goal with solid-state batteries has been to develop higher-performance anodes capable of higher energy density. This results in longer-lasting batteries and, in the case of electric vehicles, cars with much longer ranges on a single charge. | | | | The challenge for next-generation battery technology has largely been various companies' endeavors at commercialization falling through… | | | Despite our newfound powers of generative AI and seemingly unlimited computational power, commercializing solid-state batteries is an extremely difficult problem to solve. Even if we have the right materials and chemistries, the precision required in the manufacturing process can be insurmountable. | | Solid-state batteries using a silicon anode expand when they absorb lithium ions (i.e., when they are being charged). This expansion of the solid-state battery causes damage to the battery, which results in degradation of performance and also the growth of dendrites, which can result in battery fires. | | Lithium metal batteries have the problem of being highly reactive, which also leads to the growth of dendrites. Lithium metal also has a challenge with coulombic efficiency. These batteries lose a larger portion of their stored energy when being charged and discharged, making them less efficient. | | This is all to say that these are very tough problems to solve, particularly when we are considering this technology for electronics like smartphones or electric vehicles. | | After 35 years, we're overdue for a breakthrough in battery technology. I'm just as anxious as you are, and I'm always on the lookout for what that might be. | | But for now, we're going to have to settle for a few percent of improvements each year with our tried-and-true lithium-ion batteries. | | | | As for your question about EVs in a hot climate, yes, the perceived dangers are misplaced. From my perspective, the issue is less about safety and more about battery performance and utilization. | | One thing that most don't factor in is that when you're driving around and it's 100 degrees Fahrenheit outside, the air conditioning is obviously going to be on and working hard. | | In an EV, that means that the cooling system will be drawing that much more on the EV's batteries. When it's really hot, in the 90s and above, the drain on the EV battery is incredible just to keep the EV cool while driving or while parked with passengers. | | So it's not dangerous, it just eats through the electricity stored in the batteries, and that means you just need to charge the car more often. | That's it for today's AMA. Thanks to everyone for writing in. As always, you can send in your questions and comments right here. | | Have a great weekend. | | Jeff | | | | | | | Most investors believe that when they buy shares of a company, they become the legal owners of those shares.... | | | | | | Just a few days ago, Unitree announced the release of its highly functional R1 humanoid robot at a base... | | | | | | Digital assets are about to catch a fresh tailwind… | | | | | | | | | | | | | | | To ensure our emails continue reaching your inbox, please add our email address to your address book. 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