The vast majority of recent gold commentary centers on its extremely oversold technical condition and the related washout in all sorts of sentiment indicators, ranging from trader surveys to futures and options positioning. Maybe these conditions will produce a short-term bounce, but we’re going to stand with the message of our bearish longer-term work.
For more than two years we’ve discussed the supply-side risks to commodity producers stemming from capacity built during the manic “Third Act” of last decade’s Three Act Play in commodities. Commodity-oriented equities have indeed underperformed since 2011, but to date, most pundits have laid blame squarely on the demand side.
Gold broke sharply lower in April, possibly sounding the death knell for the 12-year bull market in gold (and silver). We sold one-third of our holdings in the Core and Global funds in late February at around $1595/oz., cutting each fund’s position to 4% of total assets from 6% previously. Following the big bounce in late April, we sold another chunk at $1470/oz., leaving both Core and Global funds each with a small position of 2.5% of total assets that we’ll likely continue to hold, simply in the interest of diversification.
Jim Floyd and Steve Leuthold believe that U.S. consumer price inflation has peaked and is headed for the +3% level by mid-2009. With current headline inflation running at +5.4%, that implies there is plenty of disinflation in the pipeline.
In last month's publication, it was noted that the Unconventional Asset Allocation Portfolio was establishing a 3% position in gold stocks.