Observing Market Enthusiasm
We have been closely monitoring the market and have observed significant enthusiasm in various speculative items, including S&P 500, NDX, NVDA, Copper, Cocoa, and Gold. Our proprietary model has indicated simultaneous activity in these markets, prompting us to consider the possibility of a cyclical peak. Historical patterns, such as the South Sea Bubble in June 1720 and other examples like the East India Bubble of 1772, the Panic of 1825, the Panic of 1873, and the Stock Market Crash of 1929, all occurring in May, suggest that late August into September may lead to violent liquidations in speculative markets, particularly stocks and their associated indexes. However, the markets historically clear themselves by the end of November.
Understanding the Yield Curve
US Treasury yields have remained stable, with the (2-10) year curve segment remaining inverted by 37 basis points for two years. This inversion, the longest since the late 1990s Dot-Com bubble, is considered an “unstable equilibrium” by some economists. While market forces are expected to correct this imbalance, it’s important to recognize that such changes are inevitable and serve as a precursor to monetary contraction. This curve shape change aligns with the weak seasonals referred to earlier, and we will continue to monitor its impact.
Gold Performance and the Dollar
In May, gold achieved a third consecutive monthly gain, rising by 2% to US$2,348/oz. Although this gain was more moderate compared to March and April, gold reached a new all-time high of US$2,427/oz mid-month before experiencing a pullback, likely due to profit-taking. Market activity remained supportive, with net long managed money positions on COMEX hitting a four-year high and gold ETFs seeing net inflows (US$529mn) for the first time since May 2023.
The US dollar is currently in a protracted range-trading environment, and any prolonged weakness in the dollar should, at a minimum, ease headwinds and provide potential upside for gold over the ensuing months.
Portfolio Allocation and Conclusion
Our fund is strategically allocated across the gold sector, broader market indexes and treasuries to both leverage and hedge the portfolio for our investors. Over the long term our monetary model is designed to optimize both stability and growth. We are committed to providing timely updates on these developments and their potential impact on the market. Your trust and confidence in the Agio Gold Sector Fund are greatly appreciated and we remain dedicated to delivering valuable insights to support your investment decisions.
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