Making Hay Monday – September 9th, 2025

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David Hay

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Haymaker

Making Hay Monday

A Tale of Two Commodities: Part II

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair.” -Charles Dickens, A Tale of Two Cities

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A Tale of Two Commodities—& Their Producers: Part II

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To put it bluntly, I’m having another “Dickens moment”, a personal blend of the best and worst of times, as the great English author opened his classic, A Tale of Two Cities. In my case, I’m referring to the radically divergent fortunes of gold and oil these days.

Typically, they tend to move together, but since bullion’s big breakout last year they have been, to use Wall Street lingo, negatively correlated. There are reasons, of course, such as the heavy buying of the yellow metal by the world’s central bankers. None of them, unfortunately for oil bulls like me, have made any forays into crude.

The Chinese government itself, however, is reportedly using today’s bargain prices to fill up its own Strategic Petroleum Reserve. If so, that would be totally consistent with its traditionally opportunistic approach to the oil market unlike the Western hedge fund community that tends to buy high and sell (or short) low.

As you can see below, oil has rarely been as inexpensive on an inflation-adjusted basis as it is now. This has likely been a key driver of China’s contrarian accumulation strategy.

Kemp

Thanks also to Kemp for this reference

By contrast, the Trump administration seems content, even pleased, to see West Texas Intermediate (WTI) trade in the low 60s. Re-filling America’s SPR seems to be a non-priority for Team Trump. Perhaps part of that is the pressure this places on Russia whose oil revenues are crucial to its economy. Thanks to international sanctions, the Putin regime’s major customers, like China and India, receive discounts off of already depressed current prices.

Yet, oil now trading below the marginal production costs for U.S. shale, including the ultra-productive Permian Basin, is causing extreme pain among the Administration’s plethora of oil patch allies. Those entities which explore for black gold, or assist in that process, are particularly challenged by current conditions. Those that process and/or transport crude, like refiners and pipeline operators, are faring much better. (You may have noticed that my beloved Enterprise Products, EPD, the premier midstream operator, has been commendably resilient.)

Yet, it was just earlier this year that the producers of gold itself were relegated to the investment community’s doghouse. In some ways, the antipathy was more intense because bullion was in the midst of a powerful upside range expansion or breakout. The frustration felt by the few who were holding the major gold miner ETFs, GDX and GDXJ, was profound and pervasive.

Fortunately, the rewards for those of us who stuck around have justified the wait and the angst. As I brought up in a two-hour, two-part, podcast last week with the increasingly popular Adam Taggart, it is my firm conviction that very few investors are aware that both of those ETFs are now up over 95% for the year, as I (gleefully) write these words.

Considering how often these pages have positively written up GDX and GDXJ, as well as numerous individual gold-mining plays, this is indeed a source of great joy to the aged Haymaker. These spectacular ascents also further validate two of my core beliefs: first, the criticality of breakouts from multi-year trading ranges and, second, the “bursty” nature of financial markets.

On the first point, here is a visual of the breakouts GDX and GDXJ achieved since early this year.

Google Finance

Google Finance

To say that these occurred to little fanfare is a massive understatement, right up (down?) there with saying that Donald Trump is not a fan of the Fed. The same can be said of gold’s resounding breakout a year earlier, at the beginning of 2024.

Five-year gold chart (showing the penetration of upside resistance at $2,000)

Bloomberg

What was odd about the GDX/GDXJ cracking of long-term resistance was that it was obvious earnings were going to go postal given what gold had already done. This was creating a situation where P/E ratios for many of them were becoming alluring in the extreme. Yet, where were the buyers? Perhaps they were too busy chasing AI to have noticed.

Five-year price chart of GDX (showing double breakouts above overhead resistance)

Bloomberg

Five-year price chart of GDXJ (also displaying double breakouts above key resistance)

Bloomberg

Frankly, if they were buying Nvidia you can’t blame them and it, too, had a key breakout in 2023, though not out of a three-year range. In its case, it was more like one and a half years but its earning explosion was powerful enough to have overcome that aspect. Another “frankly” is that I should have been much more attuned to that event.

That’s a decent segue into the main message of this macro section of Making Hay Monday (MHM): in my view, it’s time to do some recycling.

First of all, the gold miners look so extended in price that I can’t help but suggest you pare back by 20% or 30%. If you do, that will still leave you participating in further upside. Had you put 3% of your portfolio in GDX at the dawn of 2025, and you hadn’t trimmed any on the way up, you’d now have 6% in it. Thus, if you cut back by a third you’d still have more in it than when you started.

Secondly, there was a CNBC event on Friday that sent a shiver up my spine: Jim Cramer told the world he was a goldbug. Further, he said “don’t you sell any of your gold”. Candidly, I never, ever, perceived Jimbo to be a goldbug. Rather, until its recent moonshot, he seemed to mostly ignore it, though he did advocate a small allocation as an insurance policy.

Another disquieting event for my still substantial gold miner allocation is that Tether, the leading stable coin company, is considering buying gold miners, as well as other areas of the bullion supply chain, with the capital it allegedly safeguards. That seems like a severe case of mission creep, but it’s not the first time the creepy cast of characters at Tether’s helm has ventured far from the domain of risk-free assets. Moreover, they are clearly late to the party, even if the revelry has not been fully exhausted.

Then there was a fascinating report I just read from my astute friend Kevin Muir, he of MacroTourist fame. In it, he describes a looming reconstitution of GDX, the senior gold miner ETF. He’s expecting the distortions from a series of major buys and sells to create choppiness in the near future. Considering how extended many of the names in GDX are at this point, there could be some significant downside chop in the next few weeks.

When it comes to bullion itself, I can respect the “set it and forget it” mindset. But the miners have always exhibited such extreme volatility that a more opportunistic approach strikes me as far superior.

Specifically, I’d suggest using some of the proceeds from a gold miner position reduction to add to the detested energy sector. In my podcast with Adam, I ran this chart from my pal Jesse Felder on how disdained it is these days with the investors.

Felder

When it comes to the fickle hedge fund, they are also hating on oil itself.

Kemp

As I have said on some podcasts lately, it’s my belief that you can throw a dart at the energy sector and make great profits over the next few years. However, some are more undervalued than others. Among the most crushed is my former star, and current dog with fleas and mange, Atlas Energy Solutions (AESI). It’s about as popular with investors right now as Vladimir Putin is in Kyiv.

Yet, as you will shortly read, another related stock has been a great performer of late, despite that it is still way down from when I originally brought it up in these pages. That’s another case where some recycling might be appropriate.

Okay, because I have a bond idea in the security specific section of this MHM, let’s summarize some potential action items:…