HUI and S&P 500
First off, Happy New Year to all. Hope that everyone will have a good investing year this year. Best of health to your family and you as well.
Gold and Oil pushed high overnight in US trading. Out of all the commodity plays, I like gold and natural gas better as the technical picture does not look very good risk vs reward for agriculture and oil.
So what is my outlook for the US market this year? I am seldom one who make a prediction, and i am not going to make one (Hey! out of 10 probably only 1 or 2 gets it right)
Much of the US performance can be captured within the SP500 index. the SP500 is still in a long term channel that started in Oct 2002.
Here we see that it is having a hard time breaking out of this longterm channel and into the upside. It tested twice and failed to break it. After the recent correction, it failed to test that resistance again.
RSI and MACD also shows that it is turning down.
Instead, it tested and failed at the 75% of the channel. If it fails to hold at 1383, it might be confirm that we are in for a really volatile year.
Here i have for you a 5 year Hui chart. HUI is the Amex Gold Mining index.
As everyone can see, we are currently in the upper channel in this long term channel. The Hui finally broke out of the 1.5 year consolidation in 2006 to 2007, hitting the resistance in the upper channel.
I have said that for the bull in this commodity to go on, it is best that it went into a correction. Correct it did, as it bounce of the 75% of the channel to arrive at where we were after last nights move (6%!). That is a big move, and it might herald the start of big moves up and big moves down.
447 on the HUi will be important. Break that and stay above the channel and we might have something good long term here.
Gold and Silver can be a good alternative in your portfolio. I urge folks to see the need to have alternatives to reduce the overall correlation in your portfolio.
Last night’s move is an indication of negative correlation at work. While the main equity indexes were suffering, commodities in general move in the opposite direction. That is what you are looking for, to reduce volatility in different times, not everything move up and down together.
Ways to hedge:
- Unit Trusts
- UOB Gold and General (not my favorite at the current moment due to manager’s underperformance)
- First State Global Resources
- ETFs in Singapore
- Streettracks Gold (GLD)
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Comments
Derek,
These commodity unit trust does invest in mining companies rather than the actual bullion. They are more correlated to equities compared to bullion and have higher downside risk. but should they correct they have the fundamental element that makes them react well should bullion price goes up, that is improving margins.
It is a fine line of balance, because as demand increase and finding gold gets tougher, they really have to depend on gold’s price for improving alpha performance.
For singaporeans, these unit trust will offer a good choice for exposure to the gold market. the mining companies have somehow lag the gold price, so many commentators are looking for them to match up to gold prices.
We hope we see a move as that in 2001 - 2002.
As for Gold ETF liquidity, that would mean increasing bid-ask spread cost to own the ETF, but i see that easing when the speculators realise you can easily get exposure to gold through the ETF.
I am invested in gold etf, but through what i have in my US trading account.
Regards.
[...] i wrote about the possibility of a gold mining index break out, another big move has taken the index to the resistance. this is getting [...]
Hi Drizzt,
Thanks. It seems that Gold ETF is best traded at the US market. May I know what US brokerage you are using - OptionXpress?
I’m using ThinkOrSwim. Its not a good option if you are looking to commit only a small sum of money in, because the wire charges will come up to 20-30 dollars itself.
regards,
Drizzt
Hi Drizzt,
While I agree with you that Gold is a good hedge against the volatile market. I thought that Gold and Commodity Unit Trusts invest in mining companies and not Gold itself. Hence, the risk is actually much higher?
I’m also looking at investing in Gold ETF or UOB Gold/Savings. For Gold ETF, it seems rather illiquid. I’m worried that no one will wanna sell to me and similar no buyers as well.
Cheers