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 UsPhone: 1-800-779-4681 Email: gregorrell@ocmgoldfund.com Website: 1-800-779-4681 Address: 2600 Kitty Hawk Road, Suite 119, Livermore, CA 94551 |
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Important DisclosuresInvestors 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. Investments cannot be made in an index. Unmanaged index returns do not reflect any fees, expenses, or sales charges. 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 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 |
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Funds are distributed by Northern Lights, LLC, FINRA/SIPC. Orrell Capital Management, Inc. and Northern Lights Distributors, LLC are not affiliated. |