Year-end Gold Blues = January/February Joy?
Since 2013, Gold has followed a pattern of selling down in to year-end followed by a move higher in the seasonally strong period of January and February. December 2017 is proving no different with year-end fund liquidation, typical Federal Open Market Committee (FOMC)1 meeting pressure, tax legislation and strong broad market weighing on gold prices. We shall see if December once again proves to be an optimal entry point for the following year.


Source: fred.stlouisfed.org
The data presented in the chart above is for illustrative purposes only and is not meant to represent the Fund.
Past performance is no guarantee of future results.

Interest Rates and Gold
As expected, the Federal Reserve raised the Federal funds rate for the third time in 2017 on December 13th. As shown on the following chart, another repeatable pattern has appeared of selling gold prices down into the rate increase only to be followed by higher prices. Of note, since the Federal Reserve embarked on the current interest rate hike cycle starting December 16, 2015, gold has risen 18.19%2 and the HUI3 57.88%4 and the S&P 500 5 29.78%6 as of December 15, 2017.


Source: fred.stlouisfed.org
The data presented in the chart above is for illustrative purposes only and is not meant to represent the Fund.
Past performance is no guarantee of future results.

Connecting the Dots – Bitcoin . . . Gold
Bitcoin and other cryptocurrencies may end up being this cycle’s poster child asset signifying the blow-off of the current central bank induced easy credit cycle, just as Dot.com mania did 1999/2000 and the housing blow-off in 2007/2008. The value of understanding the cryptocurrency7 craze is realizing it signifies the market is in the process of searching for an alternative to fiat currencies8. In essence, the market smells that something is wrong in the system based on policy makers’ abuse of fiat currencies and is starting the process of searching for a store of value. In our opinion, it is the market’s circuitous route back to gold signifying it is just a matter of time until capital flows of size move back to gold assets. Our friend Doug Pollitt at eponymous firm of Pollitt & Co equated crypto currencies and gold quite well to diamond exploration:

“Diamond exploration is fascinating. You don’t start out looking for diamonds because diamonds are generally too scarce and too small. Instead, you look for “indicator minerals”: “chromium diopside”, “magnesium ilmenite”, “pyrope gar-nets.” These minerals form deep in the earth under the same pressure/temperature conditions as diamonds. They are near worthless them-selves, but if you find them in your till samples, you know you are in a prospective environment, you know you are on to something.
The surge of enthusiasm behind bitcoin strongly suggests we are onto something.”9

Potential Gold Drivers 2018

  • With the yield curve flattening, the gold market may start to sense the bulk of the rate hike cycle has been executed with possibly only two hikes left in the cards based on the spread between US Treasury going from 260 basis points in 2014 to 52 basis points after the most recent hike.10
  • The U.S. economy may or may not gather momentum in 2018 on the back of tax reform or roll over from cyclical exhaustion. At basically full employment, a strong U.S. economy may, in our opinion, lead to increasing inflationary pressures putting the Fed in the bind of risking being behind the curve versus risking an asset price implosion. Whereas, we believe a recession may lead the market to anticipate a negative interest rate environment and more Quantitative Easing (QE).
  • With record low volatility and equity valuations discounting tax reform and less targeted regulation, gold assets may begin to see an increased flow of capital if volatility increases and the broad equity market corrects lower. Interestingly, 2017 will mark nine straight years of the S&P 500 advancing without a decline. The last time that happened was 1991 to 1999.In 2000, 2001 and 2002 the S&P 500 declined three straight years, losing 9.10%, 11.89% and 22.10%, respectively11. Gold meanwhile gained 20.85%12 over that period with the HUI Index (NYSE ARCA Gold Bugs Index) advancing 96.03%13.
  • 2018 Mid-term elections could see a pivot to the left. If not for Clinton political machine keeping Bernie Sanders out, it is quite possible Bernie could be in the White House right now and not Trump.
  • The move to “de-dollarization” by China and Russia may gather steam in 2018 if the “petro-yuan” takes hold as China looks set to begin trading oil futures on the Shanghai International Energy Exchange14 with yuan settlement backed by gold.
  • Trump’s confrontational personality along with neo-cons pushing him toward war may keep geopolitical pressure elevated in 2018, in our opinion.
  • Calls for President Trump’s impeachment may grow louder in 2018 as his opponents press forward with attempting to remove him from office before his term is up.

OCM Dividend
The record date15 for the OCM Gold Fund dividend is 12/20 with an ex16 and payable date of 12/21. A dividend announcement will be issued on December 21st.

For more information or to schedule a call with Greg Orrell, Portfolio Manager, please call 1-800-779-4681.

Investors should carefully consider the investment objectives, risks, charges and expenses of the OCM Gold Fund. This and other important information about a Fund is contained in a Fund’s Prospectus, which can be obtained by calling 1-800-779-4681. The Prospectus should be read carefully before investing. Funds are distributed by Northern Lights, LLC, FINRA/SIPC. Orrell Capital Management, Inc. and Northern Lights Distributors are not affiliated.

The Fund invests in gold and other precious metals, which involves additional risks, such as the possibility for substantial price fluctuations over a short period of time and may be affected by unpredictable international monetary and political developments such as currency devaluations or revaluations, economic and social conditions within a country, trade imbalances, or trade or currency restrictions between countries. The prices of gold and other precious metals may decline versus the dollar, which would adversely affect the market prices of the securities of gold and precious metals producers. The Fund may also invest in foreign securities which involve greater volatility and political, economic, and currency risks and differences in accounting methods. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, the Fund is more exposed to individual stock volatility than a diversified fund. Prospective investors who are uncomfortable with an investment that will fluctuate in value should not invest in the Fund.

Investments cannot be made in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Past performance is no guarantee of future results.

1 The Federal Open Market Committee (FOMC) is the monetary policymaking body of the Federal Reserve System.
2 (n.d.). Retrieved December 18, 2017, from www.gold.org/data/gold-price
Gold Price Historical Data
3 HUI Index also known as gold BUGS index is the NYSE Arca’s index measuring gold companies that do not hedge their gold production beyond a year and a half.
4 (n.d.). Retrieved December 18, 2017, from https://finance.yahoo.com
HUI Historical Data
5 The S&P 500 Index, a registered trademark of McGraw-Hill Co., Inc. is a market capitalization-weighted index of 500 widely held common stocks. You cannot invest directly in an index.
6 (n.d.). Retrieved December 18, 2017, from https://finance.yahoo.com
S&P 500 Historical Data
7 A digital or virtual currency that uses cryptography for security.
8 Currency that a government has declared to be legal tender, but it is not backed by a physical commodity.
9Http://www.gata.org/files/PollittLetter-09-01-2017.pdf. (2017, September 1). Retrieved December 18, 2017, from http://www.gata.org/files/PollittLetter-09-01-2017.pdf
What crypto euphoria says about gold
10 U.S. Treasury Yield – Yahoo Finance
11 (n.d.). Retrieved December 18, 2017, from https://ycharts.com/indicators/sandp_500_total_return_annual
S&P 500 Annual Total Return Historical Data
12 (n.d.). Retrieved December 18, 2017, from http://www.kitco.coml
Historical Gold Chart
13 (n.d.). Retrieved December 18, 2017, from https://finance.yahoo.com
HUI Historical Data
14 Shanghai International Energy Exchange is an international exchange that is jointly initiated and established by relevant entities including the Shanghai Futures Exchange, and open to global futures participants.
15 The date established determining the holders who are entitled to receive a dividend or distribution.
16 The date on or after which the fund is traded without the previously declared dividend or distribution.

5967-NLD-12/19/2017