The price of gold is at one of its worst prices in more than a year, leaving some wondering if this is the beginning of the end of the shiny yellow metal’s rise. It is undoubtedly very difficult to predict the price of gold in the short term. And while this latest pullback seems to be where it’s heading for the most part, I think those sidelined by gold’s glorious run might want to do a little buying after such a vicious dip.
Of course, we should temper their expectations for forward-looking returns, especially since much of the easy money has already been made. That said, there are still macro factors at play that could pave the way for a quick recovery and perhaps even new highs before the year comes to an end. Right now, many major banks are sticking to their targets, with some of the bigger bulls on Wall Street calling for gold to rise significantly next year.
While gold has been a much more volatile asset over the past week, I wouldn’t shy away from the asset class because others are afraid of it. As of this writing, gold is down about 8% from its peak. And while this asset is still crushing the market so far, I see significant value in some of the gold mining stocks, many of which entered a bear market (down 20% from all-time highs). So as gold cools and considers its next move, investors can consider the numerous options as they look to take advantage of the latest opportunistic dip.
Things are starting to falter on the stock markets. Time to go back to gold?
With high-spending AI stocks swinging wildly after recent earnings results, and some big names plunging more than 10%, the warnings of an “AI bubble” you may have heard about from a talking head might worry you a bit. And while Halloween could be one of the scariest days for the markets in a while, I wouldn’t correct too much. Ultimately, long-term investors should invest in bear markets and play a little defensive for a change.
Just like a cup-worthy hockey team, in addition to a robust attack, you also need a rock-solid defense. Defense can win championships, and in my opinion the same is true in the investment world, at least for those with a long-term horizon. And part of defending, I think, is allocating some of your portfolio to those great low-beta hedges.
How do you play the latest dip in gold?
Although I do like the miners after their last dip (the iShares S&P/TSX Global Gold Index ETF (TSX:XGD), which is a quick way to bet on the broad basket of gold miners, is down almost 15% from its peak), I currently prefer physical gold ETFs, especially Sprott Physical Gold Trust (TSX:PHYS), which I think will get back on its feet soon after a rough past few weeks for gold prices. If you can time your entry well, I think there is significant recovery potential in both investments.
However, for those looking to limit risk and defend themselves, the PHYS is the way to go, as physical gold is less correlated to the broad market than, for example, the XGD, which is effectively as volatile as the stock markets. However, as they say: higher risk (and usually volatility), higher reward. For investors looking for a good balance between defense and offense, a 50/50 strategy for miners and precious metals could be the way to buy the dip in gold.
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