With tech stocks starting to show a slowdown in trend momentum and precious metals assets continuing to surge higher, investors are wondering about whether gains can still be captured when trading gold and silver markets. Almost inevitably, the potential doubts created by these emerging trend divergences have generated several important questions in the minds of investors.
Has all of the “easy money” already been made in the precious metals markets? Has risk sentiment changed in such a way that investors might feel more comfortable moving back into areas like the growth stock sector? What would it take for the bullish rallies that we have seen recently in gold and silver markets to reverse course and begin moving lower?
All of these questions are quite reasonable because corrective declines remain a possibility in any bullish trend (no matter how strong its underlying momentum) and recent gains in precious metals markets have extended price valuations in ways that are far beyond the historical averages.
However, investors must also remember that both gold and silver fell out of favor just a short time ago. From 2013 to 2019, gold prices were caught in a sideways trading range that oscillated between the $1,050 and $1,450 levels. At the time, many analysts believed that valuation trends gold and silver might never regain their former glory.
In fact, Nobel Prize winner Paul Krugman even went so far as to say that gold is dead in the modern world of finance. Of course, these negative assertions turned out to be wildly inaccurate. But what this actually tells us is that no trend is permanent when we are dealing with the dynamic trading behaviors that exist in modern markets.
For these reasons, financial pundits often tell us that market timing is a trading strategy that is destined for failure. However, gold’s most recent bull run shows us that there really are trading opportunities that can be telegraphed by the market in a clear and predictable fashion. In some cases, this can occur well in advance and this is where the real money is actually made when trading in any asset class.
Since the middle of last year, I have been calling for new highs in precious metals markets. More specifically, I have argued in favor of the outperformance of gold in relation to the S&P 500. Since the June 25th, 2019 article was written, the S&P 500 has gained by a grand total of 14.8%. In contrast, gains in the price of gold during this period have significantly outperformed (at 37.6%).
That said, it shouldn’t come as a surprise that my bullish view on precious metals was a highly unpopular viewpoint at that time. Of course, this is due to the rising popularity of tech stocks and the seemingly constant fascination that exists amongst investors that are looking to buy into the next tech unicorn.
But now that we are starting to hear more chatter throughout the market expressing optimism for a COVID-19 vaccine, I expect to see profit-taking (and corrective declines) in the FAANG stocks and this will leave traditional investors grasping for protective alternatives.
Even if you do not believe in precious metals space as a reliable source for long-term investment vehicles, gold and silver markets are likely to continue operating as an excellent trading strategy that is capable of outperforming most equities sectors well into 2021.
Richard Cox is a personal investor with more than two decades of experience in the financial markets. He is a syndicated writer, with works appearing on CNBC, NASDAQ, Economy Watch, Motley Fool, and Wired Magazine.
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