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Gold Stocks and ETFs Continue to Look Attractive

The precious metal continues to be an attractive hedge against a volatile summer in equities.
Maximilian B. Hamish is an independent financial analyst with investment brokerage Mason Ford.
Maximilian B. Hamish is an independent financial analyst with investment brokerage Mason Ford.


Last week, the Dow Jones set many hearts aflutter as it recorded steep declines of over 800 points midweek, leading the world’s premier stock market on a freefall rollercoaster ride. By the close of trade, the Dow was at 25,479.42, down 3.05%. Analysts on either end of the spectrum were quick to point fingers at reasons for the decline, some citing US trade relations with China, others pointing to a much deeper problem in the global economy foretelling a long-overdue recession. It wasn’t only the Dow which suffered a gut-punch last week; the NASDAQ plunged spectacularly, losing 3.5% of its value in a single day, down over 242 points in what many considered a mauling.

What’s particularly unnerving about the bearish movements in US indices is the increasing alacrity with which they are occurring. Last Wednesday’s shock decline came hot on the heels of a major downturn the previous week on August 11th. It’s easy to go into fear mode when these events occur, but it’s important to keep a level head because there are some bright spots on the horizon. For every asset category that suffers, there is often one that benefits. In the case of equities markets, one would be remiss to negate the viability of safe-haven investment options. There are many such financial instruments available to traders, notably the one with the most shine, gold bullion.

Gold Stocks and ETFs Look Attractive Right Now

While stock markets have been taking a hammering, the price of gold has been rising, moving from $1287 at the end of May to over $1500 in August. Over the past 6 months the price of gold has appreciated by 15%, as investors shore up their financial portfolios by shifting resources away from equities and other high-risk financial instruments, in favor of hedge options like gold.

Of course, there are many different ways to invest in gold such as physical stores of gold bullion, ETFs, mutual funds and individual gold stocks. One of the most popular gold investments is the SPDR Gold Shares ETF [GLD], which has appreciated sharply in recent months. At $142.75 at the time of writing, it has a P/E of 9.75 and a market capitalization of $41.24 billion, and is proving to be a valuable passively managed option for investors.

Among the individual gold stocks to consider is Barrick Gold [GOLD], up 34% since the start of the year, and up about 70% in the last 12 months. If volatility continues unabated, established gold shares and gold ETFs will continue to hold promise as a hedge against the massive uncertainty in the financial markets.

Currencies and Treasury Bonds: Where is the Smart Money Going?

It’s not only gold that advances when equities markets sour. Other financial instruments also gain momentum, notably currencies like the CHF and JPY. The Swiss franc and the Japanese yen are considered hedges against the dollar, the euro and the pound. These currencies are highly regarded in international circles, especially when the chips are down. The stability of Switzerland and Japan is viewed positively amid the global economic turmoil. When all else fails and 401(k) portfolios start taking a pounding, investors also have the option of divesting from equities and putting funds into 30-year Treasury bonds.

We have seen substantial movements of capital into U.S. Treasury bonds as frantic investors start scrambling to prevent further degradation of their retirement funds. There was no room to hide for equities across the board. Bank stocks were pummeled, credit card companies took a major hit, utilities were down, tech stocks got hammered, and even transportation company stocks were grounded.

Clearly gold is perceived as a negative-leaning investment where traders and investors temporarily hold their funds, hoping to prevent further degradation of their portfolio. As soon as markets turn for the better, gold stocks are sold en masse and funds are redirected back into equities. As a short-term option, gold is certainly looking attractive right now in this volatile summer.

Anyone with a tech-heavy portfolio is going to feel the pain in a big way. These stocks continue to be overvalued, with plenty of speculative capital being dumped into the sector during boom periods. When markets contract, tech stocks have the furthest to fall. The likes of Facebook [FB], Alphabet [GOOGL], Apple [AAPL], and Microsoft [MSFT] have all been punished. As we take stock of the chaos, nervous investors and traders are hoping that some semblance of normalcy will return to the markets.

Any hope of a reversal and reduction in volatility is grounded in the ability of the US and China to work together rather than against one another. Major clouds are gathering on the horizon across the Atlantic, as we race towards the October 31 deadline for Britain’s expensive divorce from the EU. If US-China relations are rocking the markets, Brexit fears will add further instability in Q4 2019.

Maximilian B. Hamish is an analyst at Mason Ford Group.


Equities Contributor: Maximilian B. Hamish

Source: Equities News

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