by Kyle Johnson

 

Forget lottery tickets. Skip the crypto pump and dumps. Here’s why you might want to increase your tolerance for speculating in metals and mining stocks.

 

The Black Swan That Lays Golden Eggs

In early 2020, many investors were introduced to Mark Spitznagel and his hedge fund, Universa Investments. In Q1 of that year, his fund returned a staggering 4,144%.

So how did he do it?

Tail-risk hedging. Or as some call it, “black swan investing.”

In a 2017 Bloomberg interview, Spitznagel explained that the best safe haven is “the most convex safe haven. The one where you have to invest the smallest amount in it that gives you the largest payout in the crash.”

Easier said than done.

After Universa’s stellar performance in early 2020, a CNBC host asked Spitznagel how retail investors could mitigate risk (emphasis mine):

“They can’t get the kind of explosive downside protection we do. This is the derivatives markets and everyone should really stay away from that. These are weapons of mass destruction in the wrong hands. It’s enough for people to be realistic about the risks and realistic about the risk mitigation strategy. What are they trying to get out of it? It’s something to think about in terms of gold. Gold is very similar in terms of Universa. We’re kind of siblings. I think of gold as the runt of that litter. It’s less of a payoff, so what are we expecting out of that in terms of protecting against our systematic exposure?”

I can only speak for myself. But I have no business in the derivatives markets. So gold bullion is the tail-hedge strategy for me.

 

Beware De-Worsification

Despite returns exceeding 4,000%, Spitznagel drew criticism.

Applied Quantitative Research (a capital management firm) stated headlines about such an outlying performance “usually leave out their generally high long-term cost.”

During a CNBC interview, Spitznagel agreed stating, “tail-risk hedging, in general, is costly and it’s a bad strategy.”

He went on to explain that his approach is different and better than the traditional method. Most attempt to hedge by purchasing weakly correlated equities, something Spitznagel calls “de-worsification.”

“Win some, lose some” is costly and the wrong approach to hedging. He warns that traditional strategies are a cure worse than the disease.

He prefers to lose a little when times are good, and win massively when you-know-what hits the fan. Spitznagel makes it explicitly clear that his tail-hedging is additive—his fund is structured to help clients get ahead.

“Risk mitigation, when effectively done, should raise the rate at which you compound capital. It should raise your wealth at the end of the day, or else what was the point? And this flies very much in the face of modern finance.”

My takeaway?

Don’t get cute. Buy gold bullion and follow through with Spitznagel’s extended thesis.

 

Departing From the Norm

Spitznagel takes issue with the foundational principles taught by modern portfolio theory (MPT): 60% stocks and 40% bonds.

He explains that a 1% allocation to Universa’s tail-risk hedging allows for a “much larger” allocation toward stocks. Moreover, the payoff on his fund’s tail-risk hedge is so asymmetric, it manages to produce higher returns while reducing a portfolio’s overall risk.

Naturally, gold bullion won’t provide the same asymmetric returns as the complicated strategies deployed by Universa. But it seems possible that a sufficient gold allocation justifies a higher stock allocation than the 60% taught by MPT.

What then? Should investors buy more of the same kind of stocks they already hold?

Perhaps not. In a 2017 Bloomberg interview, Spitznagel explains that proper tail-risk hedging should increase an investor’s tolerance for speculative growth plays:

“What I do is not just about playing good defense. To my clients, it’s also about playing good offense. So when you have this very small tail-hedge investment, it allows you to be more aggressive … have higher beta, be more aggressive in doing risky things. That’s really the whole point of it. It allows you to do something in a way that you would not otherwise do. So again, it’s not just about the left tail, it’s about participating in the craziness that is this distorted market today.”

Admittedly, I’m biased. But the way I see things, all this adds up to a green light to speculate in resource stocks after buying a sufficient amount of gold bullion.

Perhaps you agree.

 

Lobo’s Win-Win Portfolio

If mining stocks sound appealing, don’t run out and buy a hundred different mining stocks, expecting a handful of wins to exceed your losses. Heed Doug Casey’s warning: “You can’t kiss all the girls.” Careful stock selection is necessary.

In narrowing your options, consider Lobo’s win-win portfolio for 2025–gold and uranium.

 

Gold

If it’s sunshine and rainbows from here on out, gold will suffer. But is that what you see in the near future?

Wartime deficits have become the norm.

Bullish for gold.

Congress has largely failed to codify the spending cuts proposed by the “Department” of Government Efficiency (DOGE).

Bullish.

Trump’s Big Beautiful Bill is now law—and it implements a “spend now, save later” plan of action.

Wildly bullish.

A recent survey of 73 central banks found that 76% of them expect to increase their gold holdings as a proportion of their reserves and decrease their US dollar reserves over the next five years.

Bullish.

Rick Rule often highlights that investors historically allocated about 2% of their portfolios to gold. But recently, it’s been around 0.5%. A doubling of investor demand would still be well short of the norm. There’s evidence this may have started.

Bullish.

The ongoing tariff negotiations are difficult to track and impossible to predict. Many entrepreneurs and investors are stranded in no-man’s land. This will likely depress economic growth.

Bad for the global economy, bullish for gold.

Wars and worrisome geopolitics are also bullish for gold. Peace is welcome, but doesn’t seem imminent.

The war in Ukraine continues without many headlines. The US has bombed Iran. Navigating the Strait of Hormuz is significantly more risky than before. Iran has threatened to close the strait entirely. Frustrating the transportation of oil is bearish for economic growth.

Conflict is now the status quo. Nobody knows how or when it will end. The current demand for safe-haven assets will likely be sustained in the near future, if not increase.

Even if gold trades sideways for a while, there’s still money to be made in gold mining stocks. In case you’re unaware, the price assumption used by many gold miners is about $1,000 below the current spot price.

Extremely bullish.

But buyer beware. Gold mining stocks are notoriously fickle, with many falling or trading sideways as gold rises. This leaves many wondering if gold stocks are broken.

No, they’re not. And you can profit from the likely reversion to historic norms.

 

Uranium

The case for uranium is rock solid. And there’s a long way to run.

The nuclear renaissance is picking up steam, even in many “green energy” strongholds:

• Belgium voted to end a policy of phasing out nuclear energy.
• Denmark is moving toward ending a 40-year ban on nuclear power.
• Sweden passed a law to fund new nuclear reactors.
• Massachusetts is working toward reintroducing nuclear.

Japan regularly brings dormant facilities back online. New legislation allows Japanese nuclear reactors to remain in service beyond 60 years. China is on course to double its nuclear energy capacity by 2040.

Bankers are getting FOMO. The World Bank recently ended its ban on funding nuclear power projects. Asian Development Bank is considering a similar move.

Last month, Sprott Physical Uranium Trust (SPUT) announced a $100 million bought-deal financing. Hours after the announcement, it was pushed to $200 million due to strong investor demand.

Don’t forget about the icing on the proverbial yellowcake—the AI energy boom is real and growing. Recently, Meta inked a 20-year agreement with Constellation Energy, securing 1.1 gigawatts of energy from the Clinton Clean Energy Facility in Illinois (which was in danger of closing prematurely).

As Lobo says, uranium is an idea whose time has come again.

 

Thought Experiment

What scenario would cause both gold and uranium to fall simultaneously?

Lobo cannot envision one, nor can I.

What about you?

If not, the absence of a good answer suggests that prudent gold and uranium plays are less risky than many believe. It’s possible that both outperform. Worst-case scenario: only one of the two metals shines. If that happens, we cut our losing positions and ride our winners.

 

Hear Ye, Hear Ye

If you’re apprehensive about increasing your allocation to stocks, you might take comfort in recent statements from bond king Jeffrey Gundlach. At a recent Bloomberg event, he explained that some of his funds once had 45% leverage. But their leveraged positions are now at all-time lows, with one fund at just 7% leverage.

Gundlach called the current bond market offerings “very uninteresting.”

But he didn’t stop there.

Gundlach called the valuation of the S&P 500 “incredibly uninteresting” and overvalued. He explained that the sell-off in April was only about 1%. But since then, earning estimates have been cut “significantly,” resulting in a higher forward price-to-earnings ratio than the all-time high seen this February.

Strikingly, Gundlach also poked fun at his own gold position, saying that gold has become “a real asset” now and that it’s “no longer just for lunatic survivalists.”

Bonds are Gundlach’s bread and butter, so he’s primarily waiting for a “great buying opportunity.” No doubt it will someday come. But his reasoning strongly suggests that now is not the time to buy index funds and ETFs; it’s a stock-picker’s market—including gold stocks.

If you find yourself in a position to take some shots in gold and uranium, we’d be happy to help.

KJ

 

P.S. Lobo is also excited about copper, and he’s tracking other changing trends in the resource sector. Receive his latest thoughts on all things metals and markets by subscribing to our free, no-hype, no-spam newsletter: Speculator’s Digest.