Gold always has been and will always be a controversial asset within investment circles. Its proponents can’t agree on why it deserves a place in portfolios or how much to allocate to gold in various risk-based portfolio models.
But gold can be used as insurance against macroeconomic tail risks like inflation, a sharp drop in the market, or rising geopolitical tensions that spill over into various markets.
In the chart above, Andrews’ Pitchfork uses three parallel trend lines to show areas of past support and future resistance for the price of gold. The three parallel lines are created from a significant peak and trough. Looking at the historical price of gold, it’s easy to see the potential for higher prices in line with its past price rises. Most investors with a moderate risk tolerance will benefit from having a small allocation in the coming years.
Remember that no single asset will provide perfect protection against all possible adverse outcomes. Building a portfolio using intelligent, systematic trading and risk management governance is critical. In times of cross currents and turbulence, a well-executed risk management strategy is crucial to safeguarding and increasing portfolio value, such as adding gold as an additional asset.
At MarketGauge, we have several different quant trading portfolio strategies that utilize signals generated by our proprietary trading indicators to make the most informed trading decisions possible. We utilize our Real Motion Trading Indicator (see chart above), which displays upward momentum and forecasts a continued rally in gold, to guide our trading decisions. Also, our Triple Play Leadership Indicator is showing market dominance.
The SPDR Gold Shares ETF (GLD) is up 0.45% year-to-date and, over the last month, 4.30%. Its recent performance has been encouraging, but far from exceptional.
As an asset, gold is far from perfect. It can be fickle and unpredictable, veering off in different directions at different times. However, its recent performance suggests that it may soon be due for a strong rebound. For this reason, investors should consider taking a multi-layered approach to trade and risk management, incorporating gold into their portfolios as part of a diversified strategy. This way, you can minimize the potential downside of owning gold while still positioning yourself to benefit from any upside when the metal’s price increases.
And while gold may be a controversial asset, it has a place in almost every portfolio as insurance against macroeconomic risks. Global monetary policy is getting tighter, with even Japan looking to hike rates next year, which has implications for bond and currency markets worldwide. Many factors will play into whether gold is a good investment at any given time, but it’s essential to have a well-rounded portfolio that can weather any storm.
With the right risk management trading strategy in place, you can maximize your chances for success no matter the market conditions.
If you’re interested in learning more about how Real Motion can help you trade with an edge, contact Rob Quinn, our Chief Strategy Consultant, who can provide more information about Mish’s Premium trading service with a complimentary one-on-one consultation.
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- S&P 500 (SPY): 375 support and 390 resistance.
- Russell 2000 (IWM): 170 pivotal support and 176 resistance.
- Dow (DIA): 324 first level of support and 334 first level of resistance. The only index above its 50-WMA.
- Nasdaq (QQQ): 265 pivotal support and 276 resistance.
- Regional banks (KRE): Pivotal support is 53 and resistance 59.
- Semiconductors (SMH): Support is 204 and 213 resistance.
- Transportation (IYT): 211 pivotal support and 222 is now resistance.
- Biotechnology (IBB): 130 is pivotal support and 139 overhead resistance.
- Retail (XRT): Closed slightly below 60. 57 pivotal support and 63 is now resistance.
Director of Trading Research and Education
Mish Schneider serves as Director of Trading Education at MarketGauge.com. For nearly 20 years, MarketGauge.com has provided financial information and education to thousands of individuals, as well as to large financial institutions and publications such as Barron’s, Fidelity, ILX Systems, Thomson Reuters and Bank of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of the top 50 financial people to follow on Twitter. In 2018, Mish was the winner of the Top Stock Pick of the year for RealVision.