Run away from AAPL, NVDA and the entire tech sector as fast as you can and start buying gold - The High-Tech Strategist's Fred Hickey
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(Kitco News) - The rally in the tech sector that is driving equity markets is not sustainable, according to one market strategist, who says investors should be looking to diversify their portfolio and move into the precious metal sector.
In an interview with Kitco News, Fred Hickey, creator of The High-Tech Strategist investment newsletter, said that he thinks it's only a matter of time before gold prices push to record highs as the precious metal holds its ground at elevated levels. Unlike the tech sector, Hickey noted that the gold market is on solid ground as prices hold critical support even as investor interest has fallen sharply.
"There is zero interest from the Western world in gold right now. There is less than zero interest in mining stocks," he said. "And yet gold prices are holding around $1,970 an ounce."
Hickey noted that central bank demand and massive overseas interest in the precious metal are helping to support prices as Western investors continue to shun it. However, he added that as soon as sentiment turns, he would expect gold prices to break to significant all-time highs.
"We are going to blast through record highs and I think it will happen a lot sooner than some people think," he said. "It's not going to take much longer before people realize that the economy is at the breaking point."
As to what will prompt investors back into the gold market and the mining sector, Hickey said that investors need to pay attention to what is happening in the tech sector. He said that although the major tech companies like Apple (Nasdaq: AAPL) and Nvidia (Nasdaq: NVDA) have seen solid gains this year, it's only a matter of time before the trend reserves as the economy falls further into a recession.
Hickey added that for him, the U.S. has been in a recession for the last year as both equity and bond markets collectively saw their worst losses in roughly a century.
"This is nothing but a classic bear-market rally," he said. A few tech companies are booming, but this is the greatest disconnect to reality that I have ever seen. Every indicator, except for the [nonfarm payrolls report], shows recessionary conditions. You listen to what companies are saying, and they are telling us that demand is dropping, and they see difficult economic conditions."
Hickey pointed out that Nvidia has seen a record stock price, but earlier this week, the Semiconductor Industry Association said that chip sales are down more than 20% from last year.
Apple (Nasdaq: AAPL) is another example of an overvalued tech stock. Hickey pointed out that share prices are near record highs, but the company has negative earnings and revenue. "Their growth has collapsed."
As to what is driving this new FOMO (fear of missing out) in the tech sector, Hickey said that the mania is caused by new interest in artificial intelligence. However, he added that AI has been around for decades and is unlikely to cause significant societal changes anytime soon, despite all the hype.
He said that the price action in the tech sector is similar to other recessions like the 2000s dot-com bubble and the 2008 Great Financial Crisis.
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"The markets change, the faces change; the names change, but human psychology never does," he said. "We are in a bear market; we are in a recession, but investors just won't give up. They won't give up the dream of the great tech stocks that are going to take them to a new, richer place."
As the liquidity-induced "everything bubble" continues to pop, Hickey said that investors at this point should get as far away from the tech sector as they can. He noted that in other bear markets, tech companies have seen their share prices collapse as much as 60%.
"You should be running as fast as you can away from them," he said.
Hickey said that he has been out of the tech sector for most of the year and has been buying short-term money market bonds with yields of nearly 5%, maturing in June and July. He added that he has been buying gold and mining companies as the bonds mature.
"I have been putting my cash to work. Right now, we are in the weakest seasonal period for gold and this is the time to buy," he said. "The market might not take off next week, but I think we are close enough to the rally that I am starting to buy."
As to what companies Hickey likes, he said that he is focusing on the bigger producers that have solid production in safe jurisdictions like North America and Australia. He added that for generalist investors, companies like Agnico Eagle, Barrick Gold and Newmont are safe investments and will benefit from higher gold prices.
Hickey said that while junior explorers will see the most explosive growth as gold prices push to new all-time highs, investors must be cautious. He explained that if you are not going to do your homework and research, larger producers with solid production are safer bets.
"I have a lot of stuff to cover and I don't have enough time in the day to spend looking at exploration results. You would be safe looking at well-managed companies with good production."
Although Hickey is bullish on gold through the rest of the year, he said he would not be surprised to see prices fall lower in the near-term. He added that he would not be surprised to see gold fall to $1,900 an ounce.
"I don't think you have to have perfect timing. But you should be comfortable if prices do continue to fall before they start to rally," he said.