Tavi Costa Sees Capitulation in Gold and Silver Miners as the Dollar Fails to Rally
In this urgent interview on CapitalCosm, Tavi Costa described the sharp drop in precious metals and mining shares as a potential surrender phase rather than the end of the longer term story.
Gold had fallen roughly 30 percent from its peak, a move Costa compared to the scale of declines seen during the global financial crisis. Silver traded near 53 dollars with support discussed around the 50 dollar level, while gold held near 4,000 dollars. “It seems to me like a surrender move,” Costa said of the mining sector weakness that followed the metals decline.
He noted that most major mining companies had fallen below their 200 day moving averages, a shift that was not present just a month earlier. Daily declines of 6 to 7 percent for many miners, and as much as 15 percent for some, looked capitulatory to him.
At the same time, the companies themselves look stronger than they did several years ago. “You have better profit margins. You have outstanding balance sheets, and we also have very attractive valuations,” Costa said. He argued this makes buying miners today different from buying them three years ago and sees current prices as an opportunity to deploy capital more aggressively than a typical 25 to 30 percent cash position would allow.
A key signal for Costa is the behavior of the dollar. On a day when stocks fell hard, including an 8 percent drop in Meta and broad weakness in the Nasdaq, the dollar failed to rally as it often does in risk off environments. “When good news doesn’t translate into a price reaction, that’s something to pay attention to,” he said. Positioning in the dollar is already heavily long, and he views further weakness as more likely than continued strength. “The US economy cannot afford a strong dollar at the moment.” He also pointed to Treasury yields beginning to fall and bonds rising as additional supportive factors for the mining sector if the dollar continues to soften.
Costa has been accumulating call options on Treasury bonds through the recent decline, viewing them as a portfolio hedge that is currently one of the few areas showing strength alongside oil. He sees the current setup in rates and the dollar as extremely overbought after a period of strength, which historically has aligned with bottoms in metals. “We are in the process of hitting the bottom for many precious metals. We are in those final, crucial moments that you tend to see with regard to mining companies.”
He cautioned against treating the pullback as the start of a new bear market. “Many people panic, saying that this is the beginning of this and the beginning of that. Well, it’s much easier to say it’s the beginning of something when it’s at its peak.” With gold already down 30 percent, shorting at these levels looks risky to him. The interview also touched on energy, where Costa is less focused at the moment compared with the opportunity he sees in the mining complex. Overall he views the combination of oversold metals, improving company fundamentals, a non responsive dollar, and stabilizing Treasuries as two major signals that the worst of the recent decline may be behind the sector.
