Gold is hot right now, that’s for sure. It’s in the headlines and has been contributing to beautiful stock charts since the beginning of the year, which is nice for the diehards who have been predicting its resurgence for years (through gritted teeth). Suddenly, everyone wants to invest in gold.
Here’s a chart showing what gold has been up to since its climax top in the third quarter of 2011. (I’m using the SPDR Gold Trust ETF (GLD) to stand in for gold, as it tracks just the price of physical gold.)
Growth stock investors are usually the last people to invest in gold, because it’s a creature of sentiment, and we growth investors like to think we’re more rational than the average bear. Gold may be a hedge against inflation, but I think it’s mostly a proxy for fear. There’s not much rationality in favoring an asset that dropped by 45% from its high in August 2011 to its low in December 2015.
But persistent stubbornness isn’t rational either, and there’s no sense in ignoring an asset class that’s making a big move. Accordingly, Cabot Top Ten Trader, which screens for the strongest stocks in the market, has been recommending that subscribers invest in gold stocks since the beginning of the year, reflecting the market’s move back into this rapidly appreciating commodity. The list has included AngloGold Ashanti (AU), Randgold Resources (GOLD) and Agnico-Eagle Mines (AEM), among others.
The rebound in gold has been impressive, but it’s anybody’s guess where it goes from here. You can see that GLD’s chart shows some congestion during the past few weeks. The ETF remains in an intermediate-term uptrend, but it hasn’t made a new high since March 4.
And that brings me to the other precious metal, silver. (I know there are plenty of other hot metals, like palladium and platinum, but they don’t have much of a grip on investors’ imaginations.)
Silver took a much bigger bath than gold from its peak in April 2011 to its bottom last December. Here’s a chart for the same period as the gold chart above. I’m using iShares Silver Trust ETF (SLV) as my proxy here.
The general shape is almost identical to the gold chart, with two huge differences.
First, the total decline in silver from its 2011 top was over 72%, much bigger than gold’s 45% correction.
Second, you can see that silver—which made a smaller bounce than gold and hit its flat spot about a month earlier—has been pushing to multi-month highs recently as investors began to recognize it as the bigger opportunity.
Here’s a daily chart that will show the details of silver’s recent rally. (I’ve included volume and moving averages in this one.)
Silver is as hot as hot can be right now, and the fundamentals suggest why. Silver is valued as a precious metal, but also as an industrial metal, which adds to its potential demand.
As a growth investor, I’m a true believer in momentum. When I see a chart with the kind of lift SLV’s is showing, I want to know what’s happening and whether it’s worth putting money into.
And sure enough, on March 14, Cabot Top Ten Trader included its first silver stock in a long time. (I did the write-up myself. You can find out about the stock and see that page from Top Ten Trader right here.)
Fortune Cookie
Here’s this week’s Fortune Cookie. Remember, you can always view all previous Fortune Cookies here and Contrary Opinion buttons here.
Tim’s comment: Similarly, I might say, “Know the market and know yourself and you can make a hundred trades without experiencing major losses.” In fact, if more investors treated the market as an enemy that is trying to take their money, and less as a casino where they hope to get lucky, their investing results would be a lot better!
Paul’s comment: Business leaders love to quote Sun Tzu because they love to think of themselves as deeper thinkers and wilier strategists than their competitors. Occasionally it’s even true. But the real use for Sun Tzu is the “know yourself” part. Figure that out (with special attention to your weaknesses as an investor) and you’re way ahead of the game.
Sincerely,
Paul Goodwin
Chief Analyst of Cabot Emerging Markets Report
