InnOvation Capital & Management, LLC
IntelDigest
LAW – POLICY – FINANCE – MARKETS
INFORMATION FOR THE ENTERPRISE AND INVESTOR
SEPTEMBER 13 , 2017
Contact Richard Power with comments or questions. IntelDigest is intended for the use of our clients and colleagues. Material may not be reproduced, forwarded or shared without express permission.
Continuing our discussions of short-term investment prospects at this late stage of a long-term Bull Market, we expect that the equity markets will continue to “melt up” in these last few months of the year, before beginning a “melt down” in 2018. In recent issues of IntelDigest, we have pointed to areas of investment where our analysis shows room for growth over the balance of this year:
Opportunities for Gain
* Industrial and Precious Metals
* Agricultural Land
* Pipelines and Refining
* Clean Energy
* Japan
* Defense Spending
* Data and Networking
In this issue, and again next week, we will update our analysis of the Gold market, and where Gold and other Precious Metals are expected to go over the next year or two. Today, we will discuss the current trend in Gold. Next week, we’ll discuss longer-term fundamentals of the Gold market, and its challenges.
Come October, we will turn to the reasons for the expected “melt down” to come, and how to protect ourselves from that downturn. For now, we will stay invested, and pay attention to our Stop Losses.
Precious Metals
As we stated last week:
“Precious Metals, such as Gold, Silver, and Platinum, have been rising steadily against most currencies in recent years. The current slide of the US Dollar has brought Gold close to a 5-year high.”
The Gold “Trend”
The strong US Dollar from mid-2011 to the beginning of this year has been a major “headwind” holding back the value of Gold here in the United States. That is unwinding now. Aside from the occasional temporary correction, the Dollar is expected to gradually lose strength with respect to other stores of value, including precious metals and strong foreign currencies.
We have expounded many time in IntelDigest on the importance of Interest Rates. The U.S. economy continues to grow, but not at a rate which would justify large rate hikes by The Federal Reserve. We expect no more rate hikes this year. In addition, the size of the National Debt is so massive that raising the rate of interest on U.S. government obligations would be suicidal for the federal budget.
So, if there is no substantial rate hike on the horizon, and the US Dollar continues to lose value (even at a gradual rate), the value of Gold should continue to rise over the next few years.
The 2017 Gold Run
The precious metal has run up 17% this year, moving from $1,125/oz to $1,350/oz, before retracing to its current level at approximately $1,325. Gold prices are up over 5% in just the last month.
Gold has always been considered a “safe-haven asset,” or disaster insurance. During times of trouble, Gold prices tend to rise. Recent headlines regarding tensions with North Korea, major storm damage, domestic political missteps, and trade controversies with other countries have helped to push the metal higher.
Investor money has been pouring into Gold stocks and exchange-traded funds (ETFs), such as the SPDR Gold Trust (GLD), which is up 17% this year. As reported recently in Bloomberg:
“ETF buyers are building their holdings, joining hedge funds that have boosted their net-long position in bullion futures by almost nine-fold since early July. Through Tuesday, assets in gold-backed ETFs tracked by Bloomberg posted the biggest three-day gain since February.”
Gold has been building momentum. The last time that Gold broke out of a long slump (five years or more) versus the stock market was the late 1990s. Gold had underperformed stocks for six straight years from 1994 to 1999. Gold fell 26% during that slump, very similar to its price action since 2011.
Within two years after that slump, in 2001, Gold began a streak of 12 years of positive returns.
Another catalyst for higher prices is a technical gauge referred to as the “rolling five-year return.” From a technical perspective, the down market for Gold over the last five years should be followed by a “reversion to mean.” When long-term rolling returns for Gold are extremely low, they tend to revert to higher returns in the near future.
We haven’t seen this technical pattern since the early 2000s, which led to one of the best opportunities to buy Gold in history. The recent price movements and the underlying geopolitical and economic concerns add up to a bullish sign for Gold prices.
Next week, we’ll talk about fundamentals and long-term prospects for owning Gold.