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Tuesday, September 25th, 2018 - Buy Gold - Bringing you trusted gold news and gold investing information since 2006

Should Investors Play Gold, Gold Miners, or Gold ETFs?

Global markets are generally following the classic inverse relationship between stocks and bonds. Normalcy is returning, as are rational expectations; and with them, it’s becoming clearer that political turmoil in the Middle East (namely Libya) can only bear a finite impact on business as usual. Seeing as how the known macroeconomic shocks have been almost 100% absorbed, it’s important to watch the most active performers as these indicate the true spirit of market movements.

The Gold Trust (GLD) has been rallying for weeks now, as flight to quality has driven droves of risk-averse investors across a range of instruments to ETFs like GLD, Market Vectors Gold Miners (GDX) and Market Vectors Junior Gold Mine (GDXJ). While it’s clear gold will likely consolidate from these highs, is this a mere erasing of fictitious gains — or is a new trend emerging?

Gold, one of the Earth’s most scarce precious metals, continues to act as a “flight to quality” or “safe haven” for investors for lack of a more imaginative or plentiful underlier. I propose that gold’s scarcity will delegitimize its utility/relevance in the future of capital preservation strategies. In addition, gold is highly correlated to the economic recovery of the developed world, in Europe and the U.S. specifically. In spite of the gold standard’s passing, gold invariably acts as collateral for the monetary policies of the world’s wealthiest nations.

Following this line of reasoning, the U.S. recovery is, design-wise, separate and un-equal from the euro zone’s recovery. In effect, gold should decouple from improving macroeconomic indicators in the U.S. such as price stability (flat CPI growth), falling unemployment (initial jobless claims), and sustainable consumer-backed microeconomic growth.

I like ProShares UltraShort Gold (GLL) to capitalize on this possibility, because an investor is able to short gold in name only — meaning the investor is long a short-style instrument. The investor therefore has less downside risk, yet holds an instrument with international exposure, a low expense ratio (0.95), and is currently trading near the minimum of its Bollinger bands. The 52-week high of 51.10 alone should prove that undervalued GLL has the potential to reach support in the 40s and resistance in the 50s. This is a good buy from a well-managed and low default ETF company: ProShares.

We warn, however, that investors be aware that this is a trading instrument. Please see our opinion on the effect of contango on instruments like VXX and GLL here.

Disclosure: I am long GLL.

The original article is published at http://www.c2ads.net/full-text-rss/makefulltextfeed.php?url=http://seekingalpha.com/sector/gold-precious.xml&format=rss&submit=Create+Feed


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