Gold – Uncharted Territory to All Time Highs
Gold prices reached new heights in March, ending the month 8.1% higher for the year at $2,238.40/oz. These are all time highs and confirm the secular bull market for both the metal and its mining sector. The recent move in Gold and Gold stocks have left analysts and commentators puzzled – interest rates have risen, and the US dollar has been relatively strong – conditions that usually do not provide the tailwind for the orthodox view as to why Gold moves higher. What escapes typical commentary about Gold is that it is a Monetary Metal. This move in Gold characterizes global concern about the monetary system in general and fiat currencies specifically – depending on your country of domicile. This condition has been building for more than a decade under the radar and will become apparent to the speculative community once the global credit contraction is more pronounced.
Global Equity Markets
As we have noted since October, the rally for equities has run through January and extended into what will likely be May. The bid for the commodity complex – especially oil – has assisted in keeping the long-side speculative participants busy. Geopolitical concerns in the Middle East, Europe, Asia, and parts of Latin America are adding uncertainty to supply chain continuity and basic commodity availability. Add in US election year uncertainty about potential policy changes and you have a mix for increasingly volatile market responses. The positive tone is that these conditions lend themselves to profitable short-term speculation, however, the intermediate to longer term horizons portend a reversal to the current uptrend – the yield curve inversion has yet to reverse and when it does it is likely that the long side will be the wrong side – at least for most risk assets.
Gold Sector
Agio Gold Sector Fund’s more aggressive positioning over the last few weeks has paid off quicker than expected. Our move from a minimum Gold Equity allocation to 30% of risk assets will provide significant gains and position the Fund for a net positive NAV after expenses by month end April.
The outlook is bright. Since the double-bottom at 31 in February, GDXJ has rallied to 43. Being overbought we are looking for a brief correction. Golds are in the early stages of a multi-year bull market. Not just going up, at times the GDXJ will outperform the S&P 500 which will bring in fund managers who would ordinarily overlook this sector.
We use the Gold/Commodities ratio to forecast the potential for the sector. Commodities are a proxy for mining costs and these going down relative to the Gold bullion price means earnings are going up. And buying a stream of increasing earnings is smart investing. The typical “Dollar Down, Gold Up” play relates to FX speculation and that is not what this fund is about. Repeat: History is in the early stages of a multi-year bull market for the Gold Sector.
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