Gold 1 OZ (XAU=X) – Will Portfolios Become Shinier

Gold 1 OZ (XAU=X) – Will Portfolios Become Shinier

Gold 1 OZ (XAU=X) – Will Portfolios Become Shinier

Gold is respected throughout the world for its value and rich history, which has been interwoven into cultures for thousands of years. Coins containing gold appeared around 800 B.C., and the first pure gold coins were struck during the rein of King Croesus of Lydia about 300 years later.

Throughout the centuries, people have continued to hold gold for various reasons. Societies, and now economies, have placed value on gold, thus perpetuating its worth. It is the metal we fall back on when other forms of currency don’t work, which means it always has some value as insurance against tough times. 

The archetypal balanced portfolio, 60% equities and 40% fixed income, may not outlast the coronavirus crisis. The traditional mix goes off kilter if bonds are going to offer less and less income and more and more volatility. The solution may be to hold more stocks and cash, and possibly gold, too.

Shayne Heffernan Trade Idea

“One approach to deciding how much of a diversified portfolio should be allocated to gold is to measure the percentage of worldwide financial assets that bullion represents. According to the World Gold Council, the total value of all the gold that has ever been mined is around $7.5 trillion. That’s about 5% of the combined value of the global stock, bond and gold markets.

That 5% is a good place to start in determining your portfolio’s default allocation to gold. You would deviate from that allocation only if you believe you have reason to believe that investors worldwide, collectively, are wrong about gold’s value relative to the stock and bond markets.” Shayne Heffernan PhD in Economics

Why This Matters

The problem with the old split is that bonds no longer fulfil their intended function. They are supposed to offer a steady income stream rather than high returns and act as a buffer when equities head south. That’s not how it’s panning out. Huge asset purchases by Federal Reserve Chairman Jerome Powell and European Central Bank President Christine Lagarde are pushing up bond prices, which move in the opposite direction to yields. Increasingly, yields are low or even negative and investors only make money if prices keep rising.

True, continuing central bank purchases mean that could happen for a while. But the second difficulty is that fixed income is no longer so stable. The yield on the benchmark 10-year U.S. Treasury note, supposedly the safest and most liquid bond, fell by two-thirds over two trading days in March before rebounding sharply on the third day, almost to where it started. Third, equity and debt prices started to fall in lockstep during the pandemic-induced market turmoil in March. Such episodes defeat the point of holding low-yielding bonds.

Overall, there’s a strong case for increasing allocations to stocks, say to 70%. Yet investors still need buffers in case equities sour. They can hold more cash. There’s an opportunity cost since interest rates on deposits are close to or below zero in most advanced economies. But cash offers more safety these days than low- or negative-yielding debt and is always in high demand during times of financial stress.

Gold, either in its physical form or via exchange-traded funds, is another option. The yellow metal is a hedge against both deflation and inflation, ideal when it’s unclear whether cratering economies will depress prices or central bank money printing will push them up.

And the cost of storing and insuring physical gold holdings is less of a deterrent when alternative safe havens are offering zero or negative yields. A 70% stocks, 20% bonds, 5% cash and 5% gold mix outperformed the 60/40 standard over the past year. Maybe portfolios will become shinier.

Technical Indicators

Overall, the bias in prices is: Upwards.

The projected upper bound is: 1,768.23.

The projected lower bound is: 1,606.87.

The projected closing price is: 1,687.55.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 27 white candles and 23 black candles for a net of 4 white candles.

A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 48.9220. This is not an overbought or oversold reading. The last signal was a sell 7 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 51.50. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 34 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -86. This is not a topping or bottoming area. The last signal was a sell 9 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 8 period(s) ago.

Rex Takasugi – TD Profile

PREC.M.XAU= closed up 1.030 at 1,686.657. Volume was 8,900% above average (trending) and Bollinger Bands were 56% narrower than normal.

Open       High        Low        Close        Volume
1,685.822  1,693.427   1,682.526  1,686.657    27,825
Technical Outlook
Short Term:          Neutral
Intermediate Term:   Bullish
Long Term:           Bullish
Moving Averages: 10-period        50-period         200-period
Close:           1,701.93         1,642.50          1,547.31
Volatility:      15               32                20
Volume:          2,783            557               139

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

PREC.M.XAU= is currently 9.0% above its 200-period moving average and is in an upward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods.

There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future. Our volume indicators reflect very strong flows of volume out of XAU= (bearish). Our trend forecasting oscillators are currently bullish on XAU= and have had this outlook for the last 23 periods.

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