2024 was a year of eye-catching headlines.
We had the continued spread of artificial intelligence... a massive boom in the crypto markets... and the presidential election, just to name a few.
It was a busy year in the newsroom. And as a result, stories that would normally make headlines ended up getting swept under the rug.
That's exactly what happened with the massive boom in gold.
Most investors would likely be surprised to hear it... But the metal actually outperformed stocks – rising 27% – last year.
Gold stocks had a similarly impressive run, before the recent volatility. They were up more than 40% on the year by late October. And despite the stock market pullback, they still ended the year up 11%.
Investors seemed to have missed this entirely. And the few who have been paying attention aren't buying... They're selling.
This negative sentiment is years in the making. But it won't last forever. And when it reverses, we could see a gold-stock rally that will really grab the headlines.
The most ironclad rule in all of finance might be this simple idea... Flows follow returns.
It's based on human behavior. And it rarely fails.
Investors are always chasing returns. When a sector gets hot and leads to big gains, everyone sees that success and storms in to buy. The recent past brings in those investment flows.
Similarly, if a popular fund manager posts a great track record, folks will line up to give him their cash. He might not continue outperforming... But people want him to manage their money because of what he just did.
The hard part of investing is knowing which assets will work before they soar. Most investors can't do that, so they chase returns instead.
This rule of investor behavior is almost foolproof... But it isn't right 100% of the time. And the setup in gold stocks today is one of those exceptions.
Gold stocks have done well over the past year – up 37%, beating the S&P 500 Index.
Folks aren't buying, though... They just keep selling.
We can see this by looking at the shares outstanding of the VanEck Gold Miners Fund (GDX). This is an exchange-traded fund, which means it creates and liquidates shares based on investor demand.
So, when everyone wants gold stocks, GDX will create additional shares. When no one wants gold stocks, it'll liquidate shares. This makes the fund's overall share count a proxy for sentiment on gold stocks.
We'd expect shares outstanding to be rising today, given GDX's impressive performance. Instead, the share count is nearing a multiyear low. Take a look...
GDX's shares outstanding have been trending lower for years. The measure peaked in 2018 and is down 27% since.
Surprisingly, that decline intensified last year... all while gold stocks were soaring. Shares outstanding are now nearing their lowest level since early 2018.
This is uncommon. But for gold-stock investors, it's great to see...
No one's buying. Instead, folks are selling gold stocks, despite rising prices... And that's a situation that won't last forever.
Gold stocks have been trending higher since December. As they keep rising, the rally will begin to make headlines. Sellers will reverse course and become buyers... chasing the returns. And that's when the bull market will really pick up steam.
For now, gold is a hated bull market. But bull markets can't stay hated forever. And once this one goes from hated to loved, the real fireworks will begin.
Good investing,
Brett Eversole
Further Reading
"Retail buyers have forgotten gold entirely," Brett writes. Folks usually rush into gold as prices rise – but that's not happening yet in this bull market. And that bodes well for the health of the current gold boom... Learn more here.
"You don't fight a bull market," Brett says. Gold has been soaring despite retail investors' lack of interest. Instead, the buying is coming from a massive player in the gold market. And that means big gains are likely when regular investors finally leave the sidelines... Read more here.
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