Featured # Editorials | 3 years ago

Société Generale: “Investing in Gold and Gold Miners Best Trade in the World This Year

Stocks have dropped internationally; that is a fact. As a result, investors around the globe are heading towards their last resort. On Monday, gold went up one percent, bringing its gains as of 2016 over four percent. For juxtaposition, the biggest United States stock indexes have dropped eight percent so far.

In the last couple of years, gold has not provided much support during large drops. However, gold has little to no relationship to the market. Data comparing gold and the S&P 500 indicates that there has been a very slim negative relation between the two over the last couple of years. This suggests that although gold may provide some benefits, it may not be the best suggestion as a hedge. One technical analyst showed that gold had moved just a bit higher even though there has been a strong dip in the market.

“Given all that concerns, the sell-off, and everything we’ve seen in the market, we’ve only seen a fairly small response in gold at this time,” Piper Jaffray’s Craig Johnson reported Friday to CNBC.

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Johnson added that even after a couple years of consistent decrease, gold probably has not hit its lowest point as of right now. The signs that point to this is gold’s consistency of setting lower lows as well as lower highs. In addition to that is the fact that gold is unable to surpass its 40-week moving average.

Yet Societe Generale’s Larry McDonald believes that credit risk from the decrease in gold will put a hiatus on the Federal Reserve’s decision to raise interest rates for the remainder of the year, which could hurt the U.S. dollar and increase the price of gold and all stocks related to it. The gold miners ETF (GDX) has taken the largest hit as gold and other commodities have decrease, dipping 28% over the last year. The ETF is still in the red 2016 although it did increase by two percent on Monday. Even then, McDonald still claimed that investing in gold and gold miners “is the best trade in the world this year.”

“In the past, as the Fed has taken dovish turns as they did in September, the gold miners were up in a very short period of time,” McDonald stated. “For the rest of the year, I think credit risk will veto the Fed’s policy path and therefore, gold and the gold miners are going to do very, very well in that environment in 2016.”


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