WPM - Is It Time To YOLO Gold?
Some Investors Are Making Big Bets On Gold Right Now
The title may seem confusing if you’re a gold investor over the age of 40. But a popular phrase retail traders are using right now is YOLO. It stands for “You Only Live Once” and is a mantra that high-risk traders have taken in 2020.
Look at message boards like Reddit and social media groups on Facebook and you’ll likely come across someone saying “I YOLOed XYZABC stock”. Essentially, it’s like making a bet with your last sum of money at a casino and putting it on black or red. There’s a good chance “YOLOing” will produce big losses, it has resulted in big gains for some who’ve completely trusted a trend.
In the case of gold prices and gold stocks, is it time to start thinking about a YOLO stance? We need to take into consideration some recent developments. First and foremost J. Powell. The Fed Chair said, “The Fed expects a recovery starting in the second half of this year.” However, this doesn’t discount the fact that the Federal Reserve expects to leave rates right where they are until 2022.
FOMC members also see a 6.5% pullback in economic output laid out for this year. But they also expect a rebound of 5% growth in 2021. In the meantime, the stock market today doesn’t really know what to do. We’ve seen the NASDAQ hit new all-time highs while the S&P whipsawed during the afternoon session. What about gold?
Gold Stocks Rally For 3rd Day
Gold prices continued to push gold stocks higher for a 3rd straight day on Wednesday. At the top of the week, the price of gold recovered from lows of $1,671.70 during the previous week. They’ve firmly moved back above $1,740 on June 10; a 4% turnaround. In addition, this triggered a reversal in a number of gold stocks.
Many of them were already near major technical levels like the 50 day and 200 day moving averages. In light of this, it’s important to note that these levels continued to act as support for a slew of gold stocks this week.
Here’s how 5 gold stocks performed since June 8th:
“Precious metals found some traction in the wake of a risk-off global trade in equities, official recession labeling for the U.S. economy and because of the market’s capacity to reject sub-$1,700 pricing for a second day in a row,” Zaner Metals analysts wrote in a research note according to MarketWatch.
Obviously, smaller cap gold stocks outperformed the larger cohorts in this group. During times of a gold price boom, lower priced stocks have produced some of the biggest percentage gains. The biggest question is whether or not this trend can remain in tact. The reason being is that the flip side of the breakout is the break down. Lower priced gold stocks have typically dropped much farther, faster than larger cap gold stocks when gold prices fall.
Where Do Gold ETFs Stand Right Now?
One of the earmarks for gold stocks, in general, has been a look at gold ETFs. The SPDR Gold Trust (GLD) saw a swift recovery after bouncing off of its 50-day moving average late last week. GLD jumped from lows of $157.04 to highs this week of over $163. VanEck’s Miner and Junior Miner ETFs (GDX) and (GDXJ) respectively, rallied 10.5% and 9.5% since Friday’s lows.
“In a bull market, large-cap companies typically move first, followed by stronger performance by mid-tiers and juniors as the market advances,” according to VanEck.
Naeem Aslam, chief market analyst at AvaTrade, in reaction to the Fed statement said, “Basically, the Fed is determined to maintain adequate liquidity in the system and they are ready to do whatever is required from them. The bottom line is that the market needed a cuddle from the Fed and they have given this.”