Summary
- Gold has been in a correction phase for more than two and a half months now, but unfortunately, the downtrend is likely to continue, for now.
- The Fed has stalled its easing cycle and is not likely to lower rates again until almost a year from now.
- This is causing treasury/bond yields, and the dollar to strengthen, and inflation is not particularly high now. This is negative for gold and the entire gold/silver/mining, GSM sector in general.
- For those intent on trading GSMs, please stay away from especially toxic triple leveraged ETFs. There are much better ways to trade GSMs.
- The good news? After this correction concludes gold and GSMs in general are likely to head much higher in the intermediate and long term.
- This idea was discussed in more depth with members of my private investing community, Albright Investment Group . Get started today »
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Here’s What’s Going On With Gold
Gold has gone through a significant correction in recent months, falling all the way to $1,446 from a recent multi-year top of $1,566. This pullback of 7.7% caused some buyers to step in and as of writing this article gold is trading at roughly $1,470.
Source: StockCharts.com
So, is the correction over? Is it time to step back in and go long the yellow metal once again? What about silver, gold miners, gold mining ETFs, and their triple leveraged derivatives? Should Investors be looking at gold futures contracts instead?
There are a lot of questions surrounding the Gold/Silver/Mining, GSM sector today, and it is unclear whether the correction has concluded its course or if there is more downside ahead. Moreover, due to the unusually high level of volatility surrounding the segment, it is quite difficult to trade or even invest given the current technical, and fundamental landscape surrounding GSMs.
Nevertheless, I will attempt to paint a comprehensive image of what is going on in the precious metals sector, what is likely to occur going forward, and what trading/investment vehicles are likely best for achieving optimal long, intermediate, and short-term returns in the GSM sector.
Long Term, I See No Problems
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Those of you who read my articles are probably familiar with the fact that I believe gold is going much higher in the intermediate and long term. For a comprehensive outline on why my conviction is so strong concerning this thesis, please feel free to read my “Gold’s Path to $5,000: The New Economic Reality” article.
That is why I believe that if you are a long-term investor a significant portion of your portfolio (roughly 20-25%) should be allocated to the GSM sector. However, I’ve been getting a lot of questions about gold’s short-term trajectory as well as many inquiries regarding the numerous trading/investment vehicles related to GSMs and their various derivatives.
Current Fundamental Factors: Not Great for Gold in the Short Term
Before getting into the technicals and the various trading vehicles pertaining to GSMs, let’s briefly discuss the current fundamental environment surrounding gold. I primarily discuss gold because it is the leading asset in the GSM sector and everything else follows the leader, so to say.
Firstly, the Fed stopped easing rates. If we look at the Fed Watch Tool, we see that investors are not expecting another rate cut in December. In fact, there is now a slight chance of a rate increase, and going by the Fed Watch Tool, another rate hike does not appear likely until September 2020, nearly a year from now.
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