Gold Investing: Is Diversification Required?

January 19, 2021
President of Graceland Investment Management

1.Should precious metals investors diversify into other market sectors, like stocks, bonds, and real estate?

2.There’s no simple answer to this question, but generally speaking, an investor who is patient and buys the major support zones for gold will tend to do well with other investments. Conversely, an investor who panics on gold price sales may do the same thing with other investments.

3.Holding a mix of (seemingly) non-correlated assets (ETFs or stocks) in real estate, energy, fixed income, and general commodities may be helpful, but it’s best to build any portfolio in baby steps.

4.Diversification is simply one tool in an investor’s toolbox. It’s not the only tool, but it can be helpful. I like DBC (general commodities), SPGM (global stock market), GDX, XME, SIL (gold/silver stocks), HOMZ (real estate), TIP (inflation protected T-bonds), and physical bullion (gold/silver/platinum/palladium), and a bit of crypto… as one example of a decently diversified portfolio.

5.Investors can buy ETFs or some of the key stocks in the sectors… or own both the ETFs and the stocks.

6.2021jan19spgm.png (990×744) Click to enlarge this SPGM global stock market chart. It includes a number of big name “tech darlings”, but also a wide array of small and medium capitalization companies.

7.It could be a good place to start for metal investors looking to take their mind off the current reaction… with some diversification.

8.I’m not in favour of making investment decisions based on US elections. History shows that the big weekly and monthly chart support zones are much more important for buying and selling.

9.I should also note that being diversified doesn’t fully protect an investor from market declines, because even seemingly non-correlated assets can fall at the same time during a market crash.

10.Ultimately, an investor’s performance over time is going to relate most directly to their ability to buy price reactions and sell some positions into rallies, regardless of the investment they choose.

11.The stock market looks ready for a pullback. This, while gold looks like the foundation is being laid for another $200/ounce rally, with $300-$600/ounce in gains in just a few months of time… becoming a strong possibility.

12.Please click here now. As global governments destroy small businesses with their macabre heavy-handed and debt-focused approach to handling the Corona crisis, an argument can be made to “go with the flow” and invest in mainstream assets of stocks, bonds, and real estate.

13.Another case can be made for investors to put a strong focus on gold and crypto… the private monies of the world. I do both.

14.All investors should work diligently to keep some financial assets outside of the traditional bank/brokerage/fiat system.

15.Please click here now. Double-click to enlarge. Gold has been in reaction mode, as I predicted it would be, since arriving at the big round number of $2000.

16.Significant reactions involve discomfort for time as well as price, and investors need to prep themselves to manage all types of reactions. The good news:

17.A double bottom pattern appears to be forming on this daily gold chart. Note the long tail on yesterday’s candlestick, and the uptick in my 14,7,7 Stochastics oscillator at the bottom of the chart.

18.I urged investors to buy into $1788 on the first reaction and sell into $1966. That worked incredibly well. From here, I would suggest buying gold and related items at about $1770, with an optional stoploss at $1750.

19.Please click here now. Double-click to enlarge this interesting GDX chart.

20.The reaction appears to be overdone, and conspiracy buffs wonder if naked shorting by the banks has played a role. Perhaps, but the chart is beginning to look more positive and investors who focus their buying around the big support zones for gold are happy campers here.

21.A bull wedge pattern is in play, and further strength in the gold price could help create a stunning rally for the miners.

22.Please click here now. Double-click to enlarge this Cardano crypto chart. The hot private money sectors right now are the CDNX-listed juniors and the alt coin cryptos. That’s just the way it is. I suggest selling some bitcoin and buying silver and winning alt coins with the proceeds. Investors can get in on the crypto action with my https://gublockchain.com newsletter.

23.The bottom line for the metals markets is that gold, as expected, is in reaction mode after hitting the hugely significant $2000 round number. Modest patience is required.

24.US election mayhem, Corona, and a host of other bizarre events can be distracting, but a focus on key support zones for gold will keep most investors happy. Also, a bit of diversification can help to get the new year started on a positive note!

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Stewart Thomson is president of Graceland Investment Management (Cayman) Ltd. Stewart was a very good English literature student, which helped him develop a unique way of communicating his investment ideas.  He developed the “PGEN”, which is a unique capital allocation program. It is designed to allow investors of any size to mimic the action of the banks.  Stewart owns GU Trader, which is a unique gold futures/ETF trading service, which closes out all trades by 5pm each day. High net worth individuals around the world follow Stewart on a daily basis.  Website: www.gracelandupdates.com.

Palladium, platinum and silver are the most common substitutes for gold that closely retain its desired properties.

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