Market Update – December 7
Gold – First Monthly Close Over $2,000
Gold priced in U.S. dollars had its first monthly close over $2,000 in November, closing the month at $2,035.50 per ounce. Speculation that the Federal Reserve’s rate hiking cycle is close to ending, along with the fiscal position of the U.S. becoming increasingly precarious due to the the higher rate environment, countered the gold short sellers that were betting higher rates favored lower gold prices. Putting further pressure on the shorts has been the volatile geopolitical situation and consistent central bank buying, as central banks added 42 tons to global official gold reserves in October, per the World Gold Council.
As we have mentioned numerous times – since 1971 gold priced in USD is 93% correlated to U.S. Total Federal Debt Outstanding. The contentious political environment in Washington underscores the growing belief that policy makers will only address the deteriorating U.S. fiscal position when the market forces them (via failed Treasury auctions). In our opinion, the gold market is anticipating accelerated U.S. dollar debasement in a multi-polar world where the dollar is losing standing.
Gold Mining Shares
November proved to be a strong month for precious metals equities with the Philadelphia Gold and Silver Index (XAU) up 11.43% for the month. Despite the move up, the XAU index is still down 45.93% from its all-time high recorded in December 2010. The headwinds for gold shares remain the strong performance by Big Tech and 5% treasury yields. Gold shares have historically underperformed when the market is chasing technology stocks as tech stocks represent growth whereas gold shares are viewed as a defensive asset. Further, 5% treasury yields are attracting capital as investors have yet to worry about the return of principal (currency debasement) versus return on principal. It is our belief that capital flows into precious metals equities will gather steam once gold pushes through $2,100. Gold shares represent a good hedge in a portfolio dominated with tech stocks, in our opinion, as evidenced by the early 2000’s dot.com crash and ensuing precious metals bull market.
Chart: XAU (Philadelphia Gold and Silver Index) and IXIC (Nasdaq Composite Index) Percentage returns from 10 year period of 01/01/1999 to 01/01/2009
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.
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Past performance is no guarantee of future results
The Refinitiv 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 Refinitiv 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 Refinitiv 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 December 7, 2023
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