Commodity Meltdown Deepens as Expanding Gluts Drag Down Shares
There are few places left to hide from the commodity meltdown that’s dragging down shares of miners and energy producers and sending gold prices to their lowest since 2010.
The Bloomberg Commodity Index fell in a four-day selloff that’s the worst losing streak in three months. Brent oil capped the longest run of weekly declines since January, copper is languishing near its lowest since 2009 and wheat fell for a sixth session.
Bulls suffering through the rout can blame expanding inventories, with U.S. crude stockpiles remaining almost 100 million barrels above the five-year average for this time of the year. A stronger dollar has also cut the appeal of commodities as alternative assets, and looming concerns over China’s economy threaten to shrink demand further.
John P. Hussman, Ph.D.
A constructive shift in precious metals
Last week, the ratio of spot gold to the Philadelphia Gold and Silver Index (XAU) spiked to about 20.8, a level that is by far the highest extreme in history. Moreover, core inflation moved ahead of its level of 6 months ago, and leading economic measures continued to slip (though we don’t see them as being indicative of recession risk at present). It’s reasonable to view part of the weakness in gold stock prices as being the result of spot gold falling close to its marginal production cost (which has gradually escalated over the past 15 years). So there are certainly near-term earnings concerns for gold stocks here. But marginal production cost has historically provided a good support level for spot gold, and we would expect any increase in gold prices to quickly ease earnings concerns for these stocks.
Overall, we don’t endorse an aggressive outlook on gold stocks, but we did become more constructive last week, and we do believe that the current extreme is notable. Trend-following methods don’t perform terribly well with this group, and the equities are quite volatile, so investors should be very aware of their own risk tolerance. While the marginal production cost issue undoubtedly makes the current extreme in the gold/XAU ratio less compelling than it might appear otherwise, we do believe that precious metals shares are quite depressed in valuation terms.
Guide to Vanguard Precious Metals and Mining Investor Fund (VGPMX) - Best of Funds
Vanguard Precious Metals and Mining Inv(VGPMX) a Zacks Ranked #1 (Strong Buy) seeks long-term capital appreciation. VGPMX invests in stocks of foreign and U.S. companies engaged in exploring, mining, processing, or marketing gold, silver, platinum, diamonds, or other precious metals and rare minerals. VGPMX may also invest up to 20% of its assets directly in gold, silver, or other precious-metal bullion and coins. VGPMX’s adviser emphasizes quality companies with sound operations and attractive holdings of ore or other reserves, while also trying to maintain geographic diversity. Dividends and capital gains, if any, are distributed annually in December.
The Vanguard Precious Metals and Mining Inv fund, managed by Vanguard Group , carries an expense ratio of 0.29.DYI Comments: An excellent time to re-balance from your high flying stocks and bonds to increase your commitment (or first time purchase) into your favorite gold mining mutual fund. Our's of course is Vanguard's Precious Metals and Mining Fund. VGPMX since May 14, 2015 til today has dropped 21% from an already depressed price. As may or may not know precious metals (along with oil and gas a lessor drop) have experienced a major bear market of around 70%. The DOW/GOLD RATIO today is at 16.21 to 1 which is currently at its mean level.
Fred's Intelligent Bear Site brought to you by Fred Filskov. Public, private, and commercial distribution of this material is permitted as long as a link to this site is attached.
Market Sentiment
DYI Comments:
With this continued fall off of commodity prices will simply emboldened world wide central banks to continue their ultra-loose monetary policies no matter what our current Fed Chairman is saying. With many major economies slowing down or in outright recession I would not be surprised if our central bank postpones any rate increase stating that they are data dependent. With all of the worlds money printing it will be miracle our central bank will exit their balance sheet of government bonds without losses (pure money creation). As we move into the the 2020's Boomers will be signing up in mass for Social Security and Medicare placing extreme costs to the tax payers. What can't be absorbed though increased taxes, governments will do what they do best by monetizing those debts and inflate the problem away at the cost of middle class and poor.
My two portfolio's remain defensive as our averaging formulas are so far above the average for stocks, long term bonds, and gold we have been either "kicked out" of the market or very limited exposure.
AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION
Active Allocation Bands (excluding cash) 0% to 60%
83% - Cash -Short Term Bond Index - VBIRX
15% - Gold - Precious Metals & Mining - VGPMX
2% - Lt. Bonds - Long Term Bond Index - VBLTX
0% - Stocks - Total Stock Market Index Fund - VTSAX
**************
Maximum Aggressive Portfolio
(Super Max)
Active Allocation Bands (excluding cash) 0% to 60%
74% Cash - Hussman Strategic Total Return Fund - HSTRX
15% Gold - Tocqueville Gold Fund - TGDLX
2% Lt. Bonds - Zero Coupon 2025 Fund - BTTRX
9% Stocks - Federated Prudent Bear Fund - BEARX
No comments:
Post a Comment