Apr242024

Market Update – April 24

Gold Succeeding in High Rate Environment

The gold price move above $2,100 to a recent high over $2,400 has left market participants with more questions than answers as evidenced by recent articles on Bloomberg and in the Financial Times. Below are some of our thoughts on latest uptrend.

Financial Sense Newshour Interview

Last week I joined Cris Sheridan of the Financial Sense Newshour to discuss gold’s recent move.

Click here to listen to the interview.

Gold’s Move and Our Assessment

There is an old market saying the price breakout comes first, the reason and reinforcing narrative follows:

The gold price in Shanghai has been trading at a premium to London and New York. Demand for gold bullion by Chinese investors has increased as Chinese equity markets have entered a bear market and property markets are weak. The gold price has been closing the arbitrage between and East and West.
Central bank demand remains persistent, as fallout from the seizure of Russian central bank assets by the West in response to Ukraine War has non-Western aligned central banks looking to sell dollars assets in favor of a neutral reserve asset, aka gold. In short, it appears one economic sanction too far for the dollar as a reserve currency.
Fiscal position of the U.S. gaining focus. Total federal debt of $35 trillion, $2 trillion budget deficit, $1+ trillion interest expense along with political discord in Washington points to accelerated currency debasement. The term is “fiscal dominance” an economic condition that occurs when a country’s debt and deficit levels are sufficiently high that monetary policy ceases to be an effective tool for controlling inflation.

Geopolitical landscape is littered with troublesome outcomes. Middle East, Ukraine, and Taiwan to name a few. U.S. foreign policy has pushed China/Russian and Iran closer in alliance, which is threatening escalated military outcomes. Further, foreign policy failure, in our opinion, is responsible for the block of countries led by China and Russia to create BRICS as a competing economic block. This block is working to trade away from utilizing U.S. dollars in an effort to lessen U.S. foreign policy influence by diminishing the role of the U.S. dollar’s reserve currency status.
The gold market may be starting to discount the prospect of U.S. equity markets rolling over after an extended run of AI exuberance and elevated tech valuations. Gold assets tend to move inverse to the technology sector. In our opinion, a break of the downtrend in the S&P 500 to gold ratio will signal a major shift in capital toward gold assets. The chart showing Nasdaq 100 vs Commodities is of interest.

Investors in the West continue to fight the move higher in gold prices by selling gold assets. This move is evidenced by the consistent outflow of gold from exchange traded gold bullion funds (net outflow of 4.3Moz year to date & lowest total holdings since September 2019) and the subdued valuations of precious metals equities relative to the price of gold even as margins expand with gold prices. The Gold/XAU ratio (seen below) in our opinion, is a reflection sentiment toward gold shares. The ratio has yet to shift, representing an opportunity for investors who recognize the market has yet to price in increased margin expansion for mining companies and the valuation of the reserves in the ground.

Investors often view gold assets as an opportunity cost when other assets, such as tech or real estate, are booming. The pattern of Chinese investors buying presently is evidence of the capital shift that takes place when sentiment shifts away from financial assets and real estate. Investors in the West may find themselves re-entering the gold and silver markets at much higher prices when they look to allocate to the sector in such a scenario.

Contact Us

Phone: 1-800-779-4681

Email: gregorrell@ocmgoldfund.com

Website: 1-800-779-4681

Address: 2600 Kitty Hawk Road, Suite 119, Livermore, CA 94551

Important Disclosures

Investors should carefully consider the investment objectives, risks, charges, and expenses of the OCM Gold Fund. This and other important information about a Fund are contained in a Fund’s Prospectus, which can be obtained by calling 1-800-779-4681. The Prospectus should be read carefully before investing.

The Fund invests in gold and other precious metals, which involves additional risks, such as the possibility for substantial price fluctuations over a short period of time and may be affected by unpredictable international monetary and political developments such as currency devaluations or revaluations, economic and social conditions within a country, trade imbalances, or trade or currency restrictions between countries. The prices of gold and other precious metals may decline versus the dollar, which would adversely affect the market prices of the securities of gold and precious metals producers. The Fund may also invest in foreign securities which involve greater volatility and political, economic, and currency risks and differences in accounting methods. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, the Fund is more exposed to individual stock volatility than a diversified fund. Prospective investors who are uncomfortable with an investment that will fluctuate in value should not invest in the Fund.

XAU Index is the Philadelphia Gold and Silver Index. It is an unmanaged capitalization weighted index composed of 16 companies listed on US exchanges involved in the gold and silver mining industry.

HUI Index also known as gold BUGS index is the NYSE Arca’s index measuring gold companies that do not hedge their gold production beyond a year and a half.

The S&P 500 Index, a registered trademark of McGraw-Hill Co., Inc. is a market capitalization-weighted index of 500 widely held common stocks. You cannot invest directly in an index.
Barron’s Gold Mining Index (BGMI) is an industry average of publicly traded gold mining stocks.

Investments cannot be made in an index. Unmanaged index returns do not reflect any fees, expenses, or sales charges.
Past performance is no guarantee of future results.

A cryptocurrency is a digital representation of a stored value secured through cryptography. Although Bitcoin might be one of the most widely known cryptocurrencies today, there are many others. The markets for cryptocurrencies remain highly volatile and risky. Before turning your hard-earned cash into crypto, use the resources below from FINRA and other regulatory authorities to learn more about these markets and products.

Past performance is no guarantee of future results
The LSEG Lipper Fund Awards, granted annually, highlight funds and fund companies that have excelled in delivering consistently strong risk-adjusted performance relative to their peers. The LSEG Lipper Fund Awards are based on the Lipper Leader for Consistent Return rating, which is a risk adjusted performance measure calculated over 36,60 and 120 months. The fund with the highest Lipper Leader for Consistent Return (Effective Return) value in each eligible classification wins the Refinitiv Lipper Fund Award. For more information see lipperfundawards.com Although Refinitiv Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by LSEG Lipper.

Past performance is no guarantee of future results. There is no guarantee that the Fund will achieve its objective. Diversification does not ensure a profit or guarantee against loss. The prices of securities of gold and precious metals producers have been subject to substantial price fluctuations over short periods of time and may be affected by unpredictable international monetary and political developments, such as currency devaluations or revaluations, economic and social conditions within a country, trade imbalances, or trade or currency restrictions between countries. The prices of gold and other precious metals may decline versus the dollar, which would adversely affect the market prices of the securities of gold and precious metals producers. Because the Fund concentrates its investments in the gold mining industry, a development adversely affecting that industry (for example, changes in the mining laws which increase production costs) would have a greater adverse effect on the Fund than it would if the Fund invested in a number of different industries.

The thoughts and opinions expressed in the article are solely those of the author as of April 23, 2024

3322-NLD-04/24/2024

Funds are distributed by Northern Lights, LLC, FINRA/SIPC. Orrell Capital Management, Inc. and Northern Lights Distributors, LLC are not affiliated.

Investors should carefully consider the investment objectives, risks, charges and expenses of the OCM Gold Fund. This and other important information about a Fund is contained in a Fund’s Prospectus, which can be obtained by calling 1-800-779-4681. The Prospectus should be read carefully before investing. Funds are distributed by Northern Lights Distributors, LLC, FINRA/SIPC. Orrell Capital Management, Inc. and Northern Lights Distributors are not affiliated.

MUTUAL FUNDS INVOLVE RISK INCLUDING POSSIBLE LOSS OF PRINCIPAL

There is no guarantee that the Fund will achieve its objective.

The prices of securities of gold and precious metals producers have been subject to substantial price fluctuations over short periods of time and may be affected by unpredictable international monetary and political developments such as currency devaluations or revaluations, economic and social conditions within a country, trade imbalances, or trade or currency restrictions between countries. The prices of gold and other precious metals may decline versus the dollar, which would adversely affect the market prices of the securities of gold and precious metals producers. Because the Fund concentrates its investments in the gold mining industry, a development adversely affecting that industry (for example, changes in the mining laws which increase production costs) would have a greater adverse effect on the Fund than it would if the Fund invested in a number of different industries.

Many of the companies in which the Fund invests are smaller capitalization companies (namely, companies with a market capitalization of $4 billion or less). Smaller capitalization companies typically have relatively lower revenues, limited product lines, lack of management depth and a smaller share of the market for their products or services than larger capitalization companies. The stocks of smaller capitalization companies tend to have less trading volume than stocks of larger capitalization companies. Less trading volume may make it more difficult for the investment adviser to sell stocks of smaller capitalization companies at quoted market prices. Finally, there are periods when investing in smaller capitalization stocks falls out of favor with investors and the stocks of smaller capitalization companies underperform.

Medium capitalization companies tend to be more susceptible to adverse business or economic events than large capitalization companies, and there is a risk that the securities of medium capitalization companies may have limited liquidity and greater price volatility than securities of large capitalization companies.

There are risks associated with investing in foreign common stocks that are in addition to the risks associated with investing in U.S. common stocks. The U.S. dollar value of foreign securities traded in foreign currencies (and any dividends and interest earned) may be affected unfavorably by changes in foreign currency exchange rates. An increase in the U.S. dollar relative to the foreign currencies in which securities held by the Fund are traded will adversely affect the Fund. The Fund may invest in stocks of foreign companies that are classified under the Internal Revenue Code as passive foreign investment companies (“PFICs”). To the extent that the Fund invests in these securities, the Fund may be subject to an interest charge in addition to federal income tax (at ordinary income rates) on (i) any “excess distribution” received on the stock of a PFIC, or (ii) any gain from disposition of PFIC stock that was acquired in an earlier taxable year. This interest charge and ordinary income tax treatment may apply even if the Fund distributes such income as a taxable dividend to its shareholders. To the extent possible, the Fund will adopt tax strategies to avoid the interest charge and the ordinary income tax treatment. Such tax strategies may accelerate the recognition of income by the Fund (without the receipt of cash) and increase the amount required to be distributed by the Fund to avoid taxation. In addition, such tax strategies may require the Fund to liquidate other investments to meet its distribution requirement (including when it may not be advantageous for the Fund to liquidate such investments), which may accelerate the recognition of gain and affect the Fund’s total return. Foreign securities markets tend to have less trading volume and are more volatile than U.S. securities markets. Less trading volume makes it more difficult to sell foreign securities at quoted prices. There is the risk that political, social or economic events in a country may adversely affect the Fund’s investments in the country. There is the risk that investors in a foreign securities market may not be afforded the same protections as investors in U.S. securities markets. This is also the risk that it may be more difficult, costly and slower to enforce legal rights of the Fund in foreign countries.

Market Update – April 24

Gold Succeeding in High Rate Environment

Financial Sense Newshour Interview

Gold’s Move and Our Assessment

Contact Us

Important Disclosures

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