After the last week’s volatility-laden performances in the major indexes, it might seem that investors would want to hide away into safe haven assets like gold. However, prices for gold are on the brink of fragility, according to some analysts.
In particular, the precious metal is having the hardest time trying to break through the $1,300 price ceiling.
“Gold inability to break above $1,300 is an indication that the market is really fragile and I think investors should expect to see lower prices in the near-term,” said Fawad Razaqzada, technical analyst at City Index. “I think you have to continue to play gold to the downside as long as prices are unable to hold sustainable gains above $1,300. On the weekly chart I don’t see any reason to be bullish on gold anytime soon.”
Furthermore, Razaqzada is eyeing gold’s recent low of $1,266 an ounce. Falling below that support level could put downward pressure on prices to $1,256 an ounce.
“If gold prices go below that target, then where the selloff ends is anyone’s guess,” he said.
Where Are The Opportunities?
Is this a buying opportunity for gold? Investors can look to gold-backed ETFs like the SPDR Gold Shares (NYSEArca: GLD) and SPDR Gold MiniShares (NYSEArca: GLDM), while short-term traders can also play the gold market through miners with the VanEck Vectors Gold Miners (NYSEArca: GDX), Direxion Daily Jr Gold Miners Bull 3X ETF (NYSEArca: JNUG) and the Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT).
Furthermore, investors can consider funds like the VanEck Vectors® Real Asset Allocation ETF (NYSEArca: RAAX). RAAX uses a data-driven, rules-based process that leverages over 50 indicators, including technical, macroeconomic and fundamental, commodity price, and sentiment. Using this data, it allocates across 12 individual real asset segments in five broad real asset sectors.
The aforementioned indicators identify the segments with positive expected returns. Using correlation and volatility, an optimization process determines the weight to these segments with the goal of creating a portfolio with maximum diversification while at the same time, reducing risk.
One of the allocations the fund added as of late was opportunities in gold. With the latest announcement by the Federal Reserve that it would continue to keep interest rates in check, this could mean for strength for gold if the dollar weakens.
“It increased its gold equity allocation from 13% to 16%,” wrote David Schassler, Portfolio Manager at VanEck. “This was funded by reducing its REIT position from 12% to 9%. RAAX now holds its largest gold allocation ever, with its gold bullion and gold equity allocation accounting for a combined 36% of its assets.
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