Gold vs. Nvidia

Today, we’ll discuss gold, which recently crossed the historic threshold of $3,000 per ounce. There’s more price upside over time, I believe, for both the metal itself and definitely for mining companies. That is, even at this new high, and seemingly lofty price, the yellow metal strikes me as dramatically undervalued.

But first, before we get into gold let’s discuss a high tech darling, beloved by the stock market, namely chipmaker Nvidia. Because, as my Paradigm Press colleague Enrique Abeyta predicted at the end of last year, “Sometime in 2025, Nvidia will lose a trillion dollars of market cap.”

Whoa!

When Enrique said that, everyone in the conference room leaned back in their respective chairs, stared at him and said something like, “Whoa!”

We numbered about fifty people, gathered in an elegant brick mansion on St. Charles Street, in the Mt. Vernon section of Baltimore: a tony neighborhood in its own way, also not far from the city’s Amtrak station.

I mention this last point because long ago, in the 1880s Gilded Age, the place was built by a multimillionaire industrial magnate, one of the founders of the former Baltimore and Ohio Railroad. Today, it’s owned by a holding group, the parent company of Paradigm, which is why we held an editorial meeting there, in that ornate structure, three months ago in mid-December 2024.

Our publishers, writers, contributors, copy editors and staff all came together to review last year, nail down some lessons, and look ahead into 2025. Meanwhile, sometimes just being around money, symbols of money, and especially seriously big, old, deep money like that of the long-deceased Baltimore bigshot, helps you think more clearly about… yes… money. And what did we discern?

When we met, markets were over a month into digesting the reelection of Donald Trump, and many metrics looked rosy, if not frothy. Most indexes were up, especially the allegedly magnificent tech names that have carried modern society’s so-called “wealth creation” to nosebleed highs in recent times.

Among the standouts last year was one super-duper name, chip maker Nvidia with a market cap, at the time, near $4 trillion. And what could possibly go wrong with Nvidia?

Well, Enrique laid out a long list of potential problems with the company, any one of which could deflate even the mightiest balloon: slower sales, flattening earnings, a tough national and global climate for overall growth, government regulation, difficulty with staffing and wages, competition from other companies if not entire nations (China, Inc. being one huge issue), getting leapfrogged by other technology.

Yes, even Nvidia can encounter the usual bad things that happen to big guys. After all, nobody stays ahead or on top forever. Something always happens. In other words, and to cite ancient wisdom for you, “Oh, how the mighty fall,” as the Old Testament lays out at 2 Samuel 1:27.

Trillion Dollars of Deflation

So what happened? In mid-January an upstart Chinese company about which few had ever heard announced an efficient and powerful system for artificial intelligence (AI), and within a few days Nvidia’s market cap tumbled off a cliff. The company’s share price dropped from the $145 range to $119 in just one day, and over the next couple of weeks hit a recent downward low of $107.

By the numbers, Nvidia dropped about 18% in one day, and not quite 27% in just a couple of weeks. No, Nvidia didn’t lose a trillion dollars of market cap in just one day, per Enrique’s forecast, but the company did lose that predicted overall trillion dollars pretty fast. Worrisome, right?

Let’s not get into the weeds over Nvidia details. Sure, you can argue that the Chinese company and its AI system wasn’t everything it advertised. Its tech is not as powerful as AI that Western titans crank out, nor as broadly based. It may have relied on pirated Western intellectual property. It might even have used Nvidia chips that are under export embargo to China. But that’s not the point.

No, the point is that Nvidia spent over two years as the levitating, ascending, ever-rising darling of Wall Street and tech investors everywhere. The company’s share price went up, up and up. You were either on the Nvidia train, so to speak, or standing on the platform, staring at the caboose as it rolled down the tracks.

But never neglect that old saying, “buy the rumor, sell the news.” And in mid-January one single item hit the wires and popped Nvidia’s bubble. Poof! A trillion dollars of market cap went away, just gone; and yes, it might return, or maybe not.

Okay, some people sold high and took cash off the table. Still, if you didn’t sell Nvidia during its December and January apogee, was that massive Nvidia value ever really there for you? Or was it all just pumped up, stock market vaporware?

Back to Gold

This brings us back to gold which, as I mentioned above, recently crossed above the spot price of $3,000 per ounce. Although good luck trying to buy physical gold at spot, because sellers charge a markup, if you didn’t know. Thus, expect to pay more when you buy.

And good luck trying to secure large amounts of physical gold for any significant buys. Expect to wait for many months, and in some cases for a year or more. Right now, refiners are maxed out with future obligations to other customers, especially central banks across the globe. And that prompts the question, what do those central bankers know that makes them want to get rid of their dollars and buy bright, shiny metal?

Along these lines, let’s ponder gold in terms of what happened to Nvidia, particularly its recent, trillion-dollar market cap loss. The math is straightforward. In terms of spot-gold the overall value of Nvidia just lost the current equivalent of 333,333,333 ounces, meaning a trillion dollars divided by $3,000 per ounce of metal.

Now, this is a Reckoning letter and not a mining pub. And you may or may not know much about gold mining.

But I can assure you that a well-run gold mine in a great geological setting, humming along, can produce about, let’s say, 333,000 ounces per year. That is, a very good mining operation will deliver less than one-thousandth of the gold per year that Nvidia just lost in equivalent market cap. And that mine may cost, say, $500 million to build. Do you see where I’m going with this?

In essence, it’s easier to “create” (or lose) large amounts of market cap with a company like Nvidia than it is to build and run a productive gold mine. But one way or the other, gold is still gold. That is, gold and gold miners offer their own version of long-term value, wealth protection and potential for gains.

And with respect to mines, I’m just using nominal numbers to illustrate the point. Barrick Gold (GOLD), for example, strives to build mines that produce over 500,000 ounces per year or more, if possible. That’s because Barrick is big and always looks for what management calls “Tier 1” assets, namely half a million ounces per year or more.

Meanwhile, the world has many gold mines that produce substantially less than 333,000 ounces per year. Again, that’s a small fraction of what Nvidia just lost, which tells you that Nvidia may be overvalued, while gold is undervalued.

Again, I want to emphasize a straight, mathematical takeaway in terms of the massive, near-astronomical scope of Nvidia’s loss of market cap as calculated in gold. Nvidia’s market cap loss is 333,333,333 ounces of gold equivalent; it’s well over 10,000 tonnes (metric tons) of gold.

That last number is way more than all U.S. government gold holdings in Fort Knox, the West Point and Denver Mints, and in the vaults beneath the New York Fed, assuming that the gold really is there and not siphoned off by past political criminals.

If you hold gold, what does it mean over the long haul? Well, compare with what Nvidia chips are worth today. Sure, there’s a list price and perhaps a discount or markup. But what will that chip be worth next year, Or in five, ten, fifteen years?

But if you hold an ounce of gold, what’s it worth? There’s today’s spot price, and that price has been moving up solidly, on average, for a quarter century, delivering gains well over the broad stock market averages. While over the long haul, gold coins from 100 years ago still hold immense value today, for both the metal and the numismatic value.

To wrap it up, if you hold gold, then that’s great; forgive me if you don’t need another tutorial. But if you’re new to the gold space, there’s much to learn and we at Paradigm are here to help.

We believe the move in precious metals is just getting started.

That’s all for now. Thank you for subscribing and reading.