Gold: an alternative investment?

We have recently seen how financial markets were accusing doubts about the recovery of the world economy. Spurred by the crisis of Greek sovereign debt and possible contagion to other economies in the Eurozone, investors have begun to collect belongings and take defensive positions in assets.

A test of nerves present in the equity markets is the biggest rebound in volatility index VIX, which measures the cost overrun that investors are willing to pay to hedge their portfolios with options, reached in October 2008 when this indicator of “fear “it was at maximum.

Assets traditionally considered refuge ( safe haven ) have been those raw materials or physical products with intrinsic value; eg metals, oil, grains, properties … unlike stocks or currencies that can be worth 0.

The market is selective and not all of these assets equal react to situations of crisis, as the most related raw materials economic activity (eg copper, oil …) have bad behavior, not gold, silver and other assets such as currencies and bonds of regions with an intrinsic strength of its economy ( the US dollar, German bond … ).

The following graph shows the evolution and the relationship in the recent crisis between safe assets (dollar and bond USA) and risk assets (SP500 and raw materials)

 

However, gold although raw material still gaining strength among the safe – haven assets both by the fiscal crisis in the eurozone, for having always been regarded as a hedging instrument against inflation, which in recent times can be accelerated by the massive printing of money held by governments to tackle the recession.

This can be seen visually in the next evolution of gold in the last 3 years chart with a distinctly long – term uptrend, punctuated with some correction.

 

Having regard to the current scenario we must ask:

Can be gold an investment alternative to consider?

In the long term it seems that yes, but in the medium term after the strong appreciation accumulating since last February we will analyze the technical side of the graph, to hit in the timing .

To do this, take the following gold ETF: GLD (SPDR Gold Shares Trust), for being less leveraged than the future, will allow us to take a more in keeping with our portfolio and the level of risk assumed position. The daily chart below provided by finviz can help us design a strategy:

 

GLD is within 2 bullish channel peaked last May at $ 122.24 for support after the lower inciado channel in early April. If this scenario remains we might consider two alternatives:

  • Wait for the possible escalation to the top of the channel when you try to reach new highs surpassed point could set our entry.
  • A more conservative option would be to wait for a new support in the bottom of the channel to place our entry.

In both cases for now we would place the stop loss in the area of $ 115.

Perhaps a way to cash in times of great uncertainty and instability in the markets we can give it a particular golden refuge.

Related articles:

Where are we in the markets?

US Assets Are a Safe Haven … Again