Gold is molten hot and burning its way through the high roof!
Q2 hedge fund letters, conference, scoops etc
It’s the end of July, and you know what that means…the US. Fed’s Monetary policy meeting is nigh!
Yep, it’s that time of the year again when Traders, Bankers, Stock Analysts, Arbitrageurs, Economists, and other assorted economic aficionados start speculating on the Fed’s interest rate policy, up or down?
In this last quarter the rapid rise in gold prices has got everyone talking. A slew of factors are combining to create the perfect storm in favor of Gold, and if you haven’t looked at Gold yet, you’re missing out big time.
Last month gold hit a five year high when it breached $1440 per troy ounce, before falling due to good old profit selling.
…And the general trend is still up with a strong arrow, all buoyed by the Fed hinting that its open to a rate cut to boost the economy. Keep in mind gold is still quite a ways off from the highs of $1800+ that we last saw in 2011.
Recessionary trends, low inflation and low-to-negative bond yields have all factored in the rise of Gold, though nothing as much as plain old fashioned uncertainty.
The no-result result from the Osaka talks between China and the US has left the trade war in limbo. While talks and talks of future talks are put out in press release after press release by both countries in a bid to keep investors from fleeing to foreign shores, the general mood is pessimistically optimistic.
The uncertainty on whether the talks will or will not yield result is giving traders and fund managers the yips. No one wants a negative answer, yet if they prepare for the worst and invest their kitty on a negative outcome and instead see a trade deal take place, it would not be any better for their clients than if there were no trade deal at all. It’s the uncertainty, the not knowing which way to jump that’s got people holding bags of cash with no idea of where to put it.
The Chinese hints at retaliatory tariffs on in-demand rare earth metals did not help put minds at ease any more than US offers to sell high end weaponry to Taiwan.
One would think the planet’s favorite currency would benefit with countries far and wide rushing to load up on the dollar because of the mid-east tensions, trade slowdown, and general pessimism. It did do that as we saw the Euro weaken against a resurgent dollar for the reasons mentioned before.
June saw Euro bond yields turn negative after the ECB went on a bond buying spree to force prices down, this move was coupled with the central bank cutting the rate it charges commercial banks on deposits to -0.4%, and reduced its lending rate to zero. The EU core inflation rates are somewhere around 1.1%, well below the required 2%. Growth is stalled at 1.2%. And despite all their efforts the Euro failed to break below the Euro/USD pairing of 1.1100.
However the weakening of the euro was viewed by some as antithetical to the growth U.S. economy, with President Trump talking about currency manipulation and tweeting that the weak euro was “making it unfairly easier for them to compete against the US.” This is a no-no for the US as a strong dollar will help the EU economy much more than it would the US.
All this has added to the talk of the Fed planning a cut in the interest rate, which it is in a much better position to do vis-à-vis the ECB, to add some much needed wind to the U.S. economy, and this while the Euro is expected to plunge further due to a potential stimulus package being discussed to boost the E.U. economy.
While quite helpful to their respective economies, the weakening currencies are just adding to the luster of Gold as a nice hedge for potential investors.
Over the last few years gold lost its shine because investors like to see returns on their investment like interest, and gold does not really offer that.
However a weakening dollar means people are looking at other places to put their money. The Euro is falling faster than the Dollar, the Pound is still trapped in Brexit hell, and the Japanese yen looks somnolent.
The trade uncertainty is making all other currencies look like bad bets – no one is sure which country will catch the President’s attention next.
The global recessionary trend has caused bond yields to plunge to historic lows, with the Euro bond going negative – while investors don’t care for vehicles that don’t offer a return on their investment; they really really hate investments that cause negative returns.
The winds of global recession have taken hold across the globe leading to a trade slowdown; the trade slowdown has in turn caused a lull in manufacturing, and most of its allied industries. These winds have been boosted by all the trade war uncertainty – after all business likes stability and that is a rare commodity these days.
All this leaves the canny investor with not too many choices on where to park their money. So barring stuffing the mattresses, a null return vehicle like gold which has the wherewithal of holding its value, and most importantly a reputation of not being wildly volatile, becomes the refuge of choice.
I’ve said it before and I’ll say it again, Trend is Friend – the age of Metals is upon us, so get on the gravy train before it’s too late.
Thank you for reading my post. I regularly write about private market opportunities and trends. If you would like to read my regular posts feel free to also connect on LinkedIn, Twitter or via Atlanta Capital Group Investment Management.
Greg Silberman is the Chief Investment Officer of ACG Investment Management LLC (“ACGIM”). ACGIM specializes in creating custom private market solutions for RIA/Family Office clients.
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The views and strategies described may not be suitable for all investors. It is not possible to directly invest in an index. An index fund is a type of mutual fund with a portfolio constructed to match or track the components of an index. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. Advisory Services offered through ACG Investment Management, LLC. ACG Investment Management is an affiliate of ACG Wealth Inc.
Graph: https://www.kitco.com/charts/livegold.html
Sources: https://www.ft.com/content/cfe9f828-9301-11e9-aea1-2b1d33ac3271
