Tuesday, May 24, 2016

Why own Gold when you can own Stocks


Equities advance today as economic agents adjust to the greater prospects for Fed removal of accommodation.  While the S&P 500 Index remains 3.7% below its peak, gains over the last few sessions have propelled the index above the downward sloping trend line resistance dating from mid-April. 



So, the question some will ask is; If stocks have upside, why hold an asset that does not pay a dividend?  The answer seems to be - sell gold and buy stocks.  Gold is lower by $15 or so today having failed a bullish trend line dating from early-April. 


Gold made a 16 month high in early-May, striking above 1300 for the first time since January 2015.  Gold failed to take out that Jan ’15 high and having attracted a lot of attention from ‘Named’ buyers, found strong demand even into declining price action.  Earlier this month in ‘Gold; Too Heavy for Funds to Hold’ I noted that volume, open interest and ‘large speculator’ positioning had met record levels in the face of extreme demand, despite generally sideway price action since mid-February.  Arguing then as now that Gold prices would come lower.   


We are constructive on gold in the long run, but believe that at present many ill-positioned longs are due to be removed while the greater prospects for Fed removal of accommodation are priced.    

 

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