Knowledge Leaders Strategy mid-quarter update.
For retail investors, there are a few vehicles for exposure to gold. The SPDR Gold ETF (GLD) and the iShares Gold ETF (IAU) are the biggest, lowest cost funds for retail investors. Below are charts of the GLD and the IAU, with price and USD volume overlay to illustrate the liquidity.
Today gold is trading over $1,305, for the first time since November 4, 2016. The breakdown in the USD Index last week was a good signal telegraphing the short-term breakout in gold. Gold is notoriously difficult to value, but we have found one relationship that seems to consistently work.
On a relative basis, compared to the developed world, North American stocks peaked on November 23, 2016, and have since underperformed by about 4% (in USD).
As the title suggests, any way we slice the data, it appears that the crude oil market is coming into balance to a greater extent than is generally recognized. This has broad asset allocation implications.
Equity allocators should take note that performance trends in North America are deteriorating while they are picking up outside the US. In the table below, I show the recent performance of the sectors within our KLSU North America index...
The USD is off to its worst start since 1985, down about 9%. In the chart below (courtesy of Bianco Research), it appears the USD is tracing its performance in 1985 quite closely.
This quarter, we look at two important structural changes that appear to be underway: a normalization in US and European monetary policy and a normalization in crude oil inventories.
Back in December 2016, we discussed our expectation for lower longer-term US interest rates, which we used to justify an aversion to financial stocks. This expectation played out.
The essence of diversification is choosing assets that are not perfectly correlated with each other. The logic is simple enough: when one asset zigs, another zags. Years ago, finance scholars proved that a portfolio of securities is less risky than an individual holding and the idea of diversification as a risk management tool was born.