It was a typical options expiration week with markets showing a lassitude that normally accompanies this event. Trading volume was relatively low and action was lacking for the most part across the board as traders seemed to be on a mental vacation this week.
The SPDR Gold Trust ETF (GLD) was up for the week to finish at 91.55. This is our main proxy for the gold price and we have a trading position in GLD after we got a buy signal back in April when GLD broke out above the dominant immediate-term 15-day moving average.
The gain in GLD in recent days has been very gradual but steady and reflects the building of buying interest in gold as a “safe haven” as fears linger over the sustainability of the huge equity market gains since March. Institutional interest has seen gold and the gold ETFs turn into temporary vehicles to park gains from profitable equity trades during broad market corrections.
How much of gold’s rally is a function of future inflation expectations? That’s difficult to assess and we’re still too early in the financial recovery process to be able to answer this. The consensus among financial pundits is that gold is a “sure shot” to take off from here and eventually reach $1,000/oz. based on the multi-trillion dollar stimulus package. Some commentators are calling for even more liberal upside targets. It’s a common assumption that the stimulus will inflate commodities and spark another round of global inflation for hard assets. I would caution that this is far from a foregone conclusion, however.
The closest parallel, in purely financial terms, to what we’re seeing this year is the financial market recovery of 1975. That followed a severe pounding in equity prices that began in January 1973 and continued until the Kress 10-year and 40-year cycles bottomed in October 1974. Following this the Dow gained 100% off its’74 low and continued to rally into 1976. As we discussed in a recent report, the 10-year cycle low in 1974 coincided with the 6-year cycle peak in 1975 to form a bullish cyclical pattern that allowed share prices to rally vigorously for the single best percentage gain of our lifetime.
This year there is a somewhat similar cyclical pattern with the Kress 6-year cycle having bottomed last fall and is now ascending while the 10-year cycle is peaking. This is the reverse of what happened in 1975 but still the two key yearly cycles are in a bullish configuration, which partly explains the sizable gains that have already been made in equities this year.
So how did the gold price fare in 1975? After a parabolic type uptrend from 1971 through the early part of 1975, the yellow metal began a downtrend that lasted until the later part of 1976.
- Brazil and China: Clark likes the iShares MSCI Brazil (EWZ) and iShares FTSE/Xinhua China 25 (FXI) ETFs. "If you missed Brazil or China, you need to be looking for it," he says. "Anytime Brazil [EWZ] goes below $46 you need to be in."
- Small-Cap Growth: Rubino Financial Group, says small-cap growth is his favorite area after emerging markets, "and I would like it even more if it pulled back 10%." With an expense ratio of just 0.11%, the Vanguard Small-Cap Growth (VBK) ETF offers cheap, broad exposure to this asset class.
- Technology: Keith McCullough, chief executive of ResearchEdge, a New Haven, Conn., research firm, is advising clients to go long on the SPDR Technology Select Sector (XLK) ETF, noting that another big potential catalyst is that tech benefits from the various stimulus packages enacted throughout the globe.