Gold and Gold Miners Offer Portfolio Diversification

Gold’s been shining bright.

After surging to $5626 in late January gold fell a quick 20% by early February and has since been chopping around $5000.

We see a big opportunity given the drop.

That’s because gold and gold miners offer portfolio diversification.

Let’s rewind the tape.

Last May, we told you to Buy the Dip in Gold at $3300/oz.

We made the case for a strategic gold allocation based on a combination of economic and geopolitical uncertainty, dollar weakness, record investment demand and aggressive central bank buying.

The physical metal has surged since that call…but has recently succumbed to profit taking.

The drop was sparked by Kevin Warsh’s nomination as the Federal Reserve Chair, which signaled a more hawkish, inflation-fighting, and pro-dollar monetary policy.

Even after this pullback, gold is still beating everything from large, mid and small cap stocks to international equities and bonds of all stripes over the past year.

We don’t see that long-term uptrend changing course.

Today, we’ll show you a winning tactical strategy for both bullion and gold miners. Then we’ll update the longer-term, strategic case for the yellow metal.

As a bonus, we’ll show you a little known, winning gold ETF, plus four elite gold stocks seeing the biggest institutional buying.

Gold and Gold Miners Offer Portfolio Diversification

Let’s begin by breaking down the extreme recent outperformance.

Gold has enjoyed an amazing run, roughly tripling over the last three years.

At its recent peak of $5626, gold traded 41% above its 200-day moving average – that’s eight times higher than the 5.2% long-term average.

Even after the recent correction, gold remains overbought, trading 27% above its 200-day moving average:

Given this violent up-move, it’s normal for prices to settle down.

Historically, Gold’s Momentum Fades After Epic Rallies

Too much of a good thing can ding short-term performance.

Gold’s 3 and 6-month returns after prices rise more than 20% above their 200-day moving average tend to be weak with low positivity (chart).

The good news is gold’s 12-month returns are solid with a median gain of 9% and 55% positivity:

So embrace a healthy correction…this is par for the course.

The tactical outlook for gold mining stocks is similar.

Gold miners are up 150% over the past year, marking their strongest advance since October 2009.

Gains of this magnitude raise short-term risks, and the sector has indeed been consolidating in recent weeks.

But momentum remains exceptionally strong, with 100% of gold miner stocks still trading above their 200-day moving averages.

Since 2006, this heavy trend backdrop has been associated with strong 17.5% returns over the subsequent 12 months:

History’s message is clear: Expect choppy, trading over the near-term.

Gold needs time to consolidate its huge run.

If you have a 12-month time horizon, you should buy the dip in gold and leading mining stocks.

That’s your tactical playbook.

Let’s shift gears. Here’s why gold belongs in your long-term investment portfolio.

The Strategic Case for Gold

Gold can be streaky. Recent price action is a case in point.

But over the long run, gold has beaten 3.5% average annual inflation, crushed bonds and been very competitive with stocks (chart).

That’s a pretty impressive track record.

The case for gold doesn’t stop at strong performance.

Gold Gives Your Portfolio a Smoother Ride

The next best thing to strong returns is an investment that adds diversification to your overall portfolio.

The only widely held investment that offers true diversification is long-term Treasuries. They usually rally when risk rises, cushioning portfolios from volatility.

But long-dated Treasuries come with a catch – mediocre returns and outsized risk if rates rise for a prolonged period.

The holy grail is an investment that performs well and can zig when everything else zags.

Gold fits the bill.

Gold has low correlations to everything from high-quality bonds to high-yield bonds, to large, mid and small cap stocks, and even international equities.

Best of all, gold is very negatively correlated to the dollar (chart).

Since all the aforementioned asset classes are dollar denominated, gold’s ability to zig while the buck zags supercharge its ability to diversify your overall portfolio.

Here’s how to play this trend.

The Best Gold ETF to Buy Now

Here’s why ETFs are the best way to play the price of gold:

You can own physical gold outright. But coins have big drawbacks. Dealer fees are high. It’s expensive to insure, difficult to store in size, and when you sell, it’s taxed as a collectable at ordinary income tax rates rather than stocks’ lower capital gains rate.

Eliminate all those drawbacks with gold ETFs in a tax deferred brokerage account.

But not all gold ETFs are created equal.

State Street’s GLD is the category leader, but its annual expense ratio is a high 0.4%. State Street launched GLDM in 2020 to meet strong demand for a cheaper alternative.

GLDM has all of the great characteristics of GLD with an expense ratio of only 0.1%.

The choice is clear. Buy GLDM for exposure to gold bullion.

For Miners, It’s About More Than Just the Gold Price

The second way to get gold exposure is with gold mining and/or royalty-stream stocks. They tend to have leverage to the price of gold, moving up or down more than the metal.

A rising gold price environment is obviously good news for gold equities, but you have to be very choosy.

Organic growth doesn’t come easy for miners. Finding new gold deposits, or expanding existing ones, is a difficult, lengthy, capital and labor-intensive process, often happening in far flung, risky overseas jurisdictions.

That’s where the MoneyFlows scoring system comes into play.

Our data is built to find the outlier stocks ahead of the crowd.

To get access and make even more from this call to action, sign up for a PRO membership.

You’ll get our proprietary indicators and learn how our unique money flow approach finds outlier stocks early. Give it a shot!

If you’re a money manager or RIA and want portfolio solutions and deep ETF insights, reach out about our Advisor solution here.

Be early next time.

Go with the flows!

MoneyFlows has you covered.

We follow the Big Money to find the best miners and streamers to buy.