No stranger to generating significant buzz on social media, hedge-fund manager Michael Burry – whose exploits were chronicled by the film “The Big Short” – again got investors talking. This time, Burry declared that he was “wrong to say sell” in a tweet. Further, the often-contrarian expert highlighted a generational sentiment shift whereby retail investors bought up dips in the market.
Assuming that Burry’s being sincere about this apparent pivot, he may have telegraphed his evolving thesis. About two weeks ago, the hedge-fund manager essentially downplayed the threat posed by the regional bank failures earlier in March. Pointing to the U.S. government’s decisive action in putting out the fires, Burry remarked that a stand had been made.
Prior to the banking sector tweets, Burry struck a pensive if not outright bearish tone regarding market viability. Almost on cue, the equities sector edged higher following the Thursday morning tweets. Fundamentally, the easing of contagion fears associated with the bank runs bolstered sentiment. That a frequent bear apparently switched sides represented icing on the cake.
Still, it begs the question: why is gold moving higher?
It’s not just about the spot price of the precious metal itself. Mining enterprises – even higher-risk, higher-reward names like B2Gold (BTG) – have attracted significant investor interest. For example, while the S&P 500 gained a tad under 3% in the trailing week, BTG stock shot up almost 6% during the same period.
In addition, BTG stock represented one of the top highlights for Barchart’s screener for unusual stock options volume on the March 30 session. Call volume reached 31,078 contracts against an open interest reading of 63,023. Further, the delta between the Thursday session volume and the one-month average volume came out to 1,544.29%. This breaks down to 31,059 calls versus only 19 puts.
Michael Burry and the Gold Question
On paper, Burry’s admission that he might be wrong about his prior bearish sentiments toward the capital markets could be viewed as capitulation. Therefore, retail investors may be buoyed by the shift, thus sparking higher valuations in various assets, particularly within risk-on categories. Nevertheless, the gold question clouds Burry’s seemingly bullish transformation.
As I’ve stated before, gold represents a dumb commodity. To be 100% clear, I don’t mean that in a pejorative sense. In my opinion, for an investment portfolio to be truly holistic, it should incorporate some exposure to physical precious metals.
However, we live in a world of rapidly evolving innovations. From medical breakthroughs to the development of the space economy, society aims to push the envelope of human ingenuity. Also, artificial intelligence protocols such as ChatGPT have become increasingly adept at improving efficiencies. Indeed, we may be in the middle of an arms race with automation.
Therefore, modern investors can’t afford to direct too much of their funds toward static commodities that hire no people, produce no earnings and pay no dividends. That gold and gold-related trades like BTG stock shot higher deserves investigation.
Despite the Michael Burry pivot, investors should realize that we may not be out of the woods yet. While tracking unusual options volume offers no guarantees of trading success, it can provide insights regarding what the smart money is doing with their funds.
Under this framework, the smart money sees upside potential in gold – and that’s largely a positive for gold bugs but not necessarily for everyday individuals. At the heart of the matter, rising precious metal prices tell us that for the time being, it’s better to invest in dumb commodities than to risk downside investing in actual businesses.
Follow the Logic
After weeks of anxiety regarding the banking sector fallout, recent price action in the stock market demonstrated that this fear is steadily fading. Basically, the government stepped in and took the steps necessary to prevent a broader crisis. Problem solved.
Wait…what?
To quote the late former President Ronald Reagan, “Government is not the solution to our problem, government is the problem.” Apparently, Reagan never considered the role the federal government would play in addressing bank runs. Why, Uncle Sam only needs to guarantee the deposits of affected individuals and enterprises. Easy peasy.
Unfortunately, I missed the Economics 101 lecture about how central banks can cure real losses with “printed” money without sparking significant consequences. Obviously, this circumstance raises another basic question: where did this money come from? Answering that will then elucidate the original inquiry about rising gold prices.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
