Gold Hot – Value Stirring – Worrying Investor Timing

Fri 05 Apr 2024

By Brian Dennehy

Access Level | public

Market commentary


QuoteSince the last Friday Note interest rates in the pivotal US now appear unlikely to fall very much very soon. The latest numbers for jobs, manufacturing activity, and prices are edging up. Added to this, a range of commodity prices are rising noticeably, mostly justified by positive signs of China turning the corner, but also due to risks of an escalation in the Near East conflict.

This has paused US markets rather than anything more substantial. US government bonds are subdued. The S&P 500 has gone sideways for a fortnight, though this still looks like hesitation before a new peak in the week or so ahead. 

Much more interesting are the new highs in the gold price and a spike in funds invested into gold miners. This is reflected in the months What’s Hot, What’s Not feature, where gold funds have edged towards 20% gains in 4 weeks. As we said on 1st March, the disconnect between the gold price and gold miners appeared to be creating an opportunity.

If you are considering gold, the skewed relationship between the performance of the gold price and the shares of gold miners needs to be understood. This was covered in the May 2023 teleconference (along with the opportunity in AI). 

So that you don’t get over-excited about gold, as the media will be in days and weeks to come, do also read “Let Me Tell You A Story” where we explore some myths about gold. It is not that there isn’t an argument for considerably more upside – just make sure you invest into gold, not fall in love with it.

Returning to this month’s What’s Hot, a couple of UK Value-style funds also feature, in particular they are funds that have very patiently been uncovering nuggets in the UK in recent years but, until now, have been very frustrated by the lack of recognition.

This tendency is also reflected in the Hot sectors, three of which definitely having a Value-bias, as you will see.

Coming full circle, if interest rates are likely to stay higher for longer, this is exactly the environment in which history tells us Value investing should be the winner for a number of years relative to Growth-style investing. To help you identify the better funds in such period we created our unique Value Funds Universe, and here is the last Value Funds update, which also links back to earlier research on Value investing, what it is, and when it works.

I also mentioned US equities earlier, suggesting that after a fortnight of hesitation on the other side of the pond, our immediate technical analysis suggests another high lies just ahead. This also tallies with our prior projection for the S&P 500 of 5361, which is less than 2% above the recent peak on 1st April.

When you click through above on What’s Hot, you will note the UK funds and sectors which are stirring. The possibility that UK funds might be starting a period of outperformance, even if only relative, is not being given any credence by UK-based investors. March was apparently the 34th consecutive month of outflows from UK funds. What is even more interesting in this report is that UK investors bought more in US equity funds in the last four months than the combined total of the last nine years (Source: Calastone Fund Flows index). 

With everything we know about US bubble valuations, and the linked investor mania, does that make sense to you? Is this another one of those fantastic indicators of retail investors piling in right at the top? This isn’t just occurring with pure retail investors, or self-directed investors. UK wealth managers and advisers, worrying that they missed the boat in 2023, are buying now. They aren’t buying for investment reasons, but rather for business reasons, to try and calm frustrated clients. 

Last but not least, over the last week more CEOs of US corporates have visited China, Xi and Biden have been on the phone together, and Chinese stock market indices are the best performing of the major global markets (with UK stock market indices not far behind, led by smaller companies).


Market commentary


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