A decline in spot gold prices was noted during these moments of trading on Tuesday, under the influence of the rise in the dollar. Traders are expected to prepare for the main inflation data in the United States, which is supposed to provide signals about the extent of interest rate cuts by the Federal Reserve next week.
The dollar reached its highest level in a week, which increased the cost of gold for holders of other currencies. This comes in conjunction with the market’s shift in attention to the US consumer price index data scheduled to be announced on Wednesday, as well as the expected producer price index reading on Thursday.
The core consumer price index is expected to increase by 0.2% on a monthly basis in August, unchanged from July. Expectations indicate that the inflation data may reflect further slowdown, which may open the way for the Federal Reserve to cut interest rates. Barring any major data surprises, gold prices are expected to remain well supported above $2,500, and could touch $2,660 in the coming months, according to a market analyst.
“If US inflation data comes in much lower than expected and raises hopes for a 50bps cut, gold could hit an all-time high,” said a money market analyst for trading. Lower interest rates could reduce the opportunity cost of holding zero-yielding bullion. The Federal Reserve is almost certain to ease rates when it meets next week, with expectations indicating a 71% chance of a 25bps cut versus a 29% chance of a 50bps cut.
The best way to increase clients’ money
Gold prices turned higher on Monday, after the yellow metal posted its second straight weekly loss. The change comes as markets await the release of US consumer and producer price index data this week. At the settlement of the transactions, the prices of gold futures for December delivery were noted to have increased by 0.3% or $8.1, to reach $2532.70 per ounce.
As for spot gold, a decrease was noted by 0.1% to reach $2502.80 per ounce. As for gold futures in the United States, they settled at $2532.00. On the other hand, the dollar index contracts recorded an increase by 0.07% to reach 101.59 points.
As for other metals, a decrease was noted in spot silver by 0.2% to reach $28.29 per ounce. While platinum rose by 0.3% to reach $940.77, palladium rose by 0.6% to reach $952.15.
According to Jeff Molenkamp, it is believed that the best way to increase clients’ money in some markets is not to take any quick action. Molenkamp has outperformed 98% of large-cap fund managers over the past five years. Notably, this outperformance was achieved despite holding a significant portion of his portfolio in cash, a practice that is generally thought to limit returns.
In mid-2022, cash was reported to account for about 45% of Molenkamp’s portfolio, but that percentage had been reduced to 30% by early 2023. The strategy, while unconventional, has proven successful, with his fund posting positive returns in 2022, the worst year for U.S. stocks since 2008, according to a Business Insider report. Even after investing some of the cash, about 14% of assets remain on the sidelines. The large cash holdings were the result of reducing positions that had reached fair value levels. Warren Buffett follows a similar approach.
Current valuations for the stock are high
In his talk, Mollenkamp explained that he is willing to tap his cash reserves but stressed that current stock valuations are too high while the economy is showing signs of weakness, with cash yields around 5%. Mollenkamp noted that the big tech stocks that have benefited from the AI boom are the most popular in the market. Nvidia, for example, has been on a strong rise, but it came under pressure in the summer when investors questioned whether demand for AI would be sustainable.
Mollenkamp believes that Nvidia’s high valuation will only remain justified if companies continue to pay premiums for its AI chips. Otherwise, the company could face challenges in emerging from its current market situation. While some experts have ruled out a recession, Mollenkamp remains skeptical. He noted that some sectors are already feeling the economic pressures. Nvidia’s stock has been on a high run, but it has been under pressure this summer as investors worry that demand for AI will continue to stagnate. Molenkamp stated that Nvidia’s high valuation will only be justified if companies continue to pay premiums for its AI chips. If that doesn’t happen, the company may struggle to emerge from the current bear market.
While some experts have ruled out the possibility of a recession, Molenkamp stressed that this is not certain. He also added that the possibility of an economic contraction is possible, noting that some sectors are already feeling the pain. Molenkamp expressed his belief that the economic expansion may continue, but that markets should take into account the potential pain. He stated that “very few companies are priced as if
market expects a recession – even though manufacturing, trucking, and chip manufacturing are in recession. However, this is not reflected in prices, which means that it is time to be patient.”
Gold starts to reach high levels
Even in a market that is lacking in discounts, Molenkamp has investments that he can put his money into, including gold-related companies. “Gold is starting to hit highs, but none of the gold-related stocks are moving,” he said. The yellow metal has emerged from a long slump and is up 22% this year, although gold mining stocks such as Newmont and Royal Gold didn’t rally until late March.
These two companies, now some of Molenkamp’s biggest holdings, have risen 49% and 22% respectively since then, yet he believes they remain undervalued. Gold is seen not only as a hedge against a weaker economy, but also as a proven hedge against rising inflation. Molenkamp has expressed concern that inflation could accelerate to 3% or 4% in the future, due to government spending that is deemed too high.
