Treesdale Partners, portfolio manager of the AdvisorShares Gartman Gold/Euro ETF (GEUR), AdvisorShares Gartman Gold/British Pound ETF (GGBP), AdvisorShares Gartman Gold/Yen ETF (GYEN) and AdvisorShares International Gold ETF (GLDE), share their thoughts about the gold space.
With the collapse of oil, market participants are logically discussing which assets are vulnerable to more selling and which are value buys. As everyone knows, the currencies of oil producers like Norway, Mexico and Nigeria have been crushed but none to the extent of the Russian Ruble. The Russian situation was fairly unstable even before the oil debacle. It’s unclear to most market participants how the Russian situation plays out. The interest rate increase to 17% has stemmed the ruble down trade for now. Commodities have been sold off in sympathy hence the currencies of commodity producers especially those of Emerging markets have been very weak. But the asset class everyone is talking about is high yield bonds or junk bonds as they are affectionately referred to. Since energy companies comprise the second highest percentage of the high yield universe at 16% at right behind telecommunications, it is causing havoc in the market. Some energy junk bonds are down 20-40% in price.
Credit, distressed and multi-strategy hedge funds that are mostly positioned long high yield will be reporting horrible 4th quarter returns. Along with traditional long only junk bond funds, there will be redemptions coming soon which will cause even more selling. Rumors abound daily of hedge fund liquidations. Will this cause another credit crisis like we experienced in 2008? It’s anyone’s guess however most market players are not anywhere as levered as they were in the mid-2000s. Where is the capital going? It looks like cash mostly with interest rates in US, Japan, and Germany trending even lower. Finally gold has been meandering around the 1200 USD level which with respect to its other commodity brethren has done quite well. Perhaps investors are looking at gold as a safety play again.