The price of gold is fresh off one of its worst prices in more than a year, causing some to ponder whether this is the beginning of the end of the shiny yellow metal’s surge. Undoubtedly, it’s really tough to predict the price of gold over the near term. And while this latest pullback seems mostly par for the course, I do think that those who’ve been sidelined from the glorious run in gold may wish to start doing a little bit of buying after such a vicious dip.
Of course, one should temper their expectations regarding forward-looking returns, especially since much of the easy money has already been made. That said, there are still macro drivers at play that could pave the way for a swift rebound and perhaps even new highs before the year comes to a close. At this juncture, many big banks are standing by their targets, with some of the bigger bulls on Wall Street calling for gold to gain significantly through next year.
While gold has been a far more volatile asset this past week, I wouldn’t shy away from the asset class, as others are scared out of it. At the time of this writing, gold is down about 8% from its peak. And while the asset is still crushing the market on a year-to-date basis, I do see significant value in some of the gold mining stocks, many of which found themselves falling in a bear market (a 20% drop from all-time highs). So, as gold cools off and considers its next move, investors may wish to consider the numerous options as they seek to take advantage of the latest opportunistic dip.
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Things are getting wobbly in stocks. Time to go back to gold?
With spend-heavy AI stocks wobbling quite a bit after recent earnings, and some big names plunging by more than 10%, those “AI bubble” warnings you may have heard of from a talking head might have you a bit worried. And while Halloween day could be one of the scariest for markets in a while, I wouldn’t make too much of a correction. At the end of the day, long-term investors need to invest through bear markets and play a bit of defence for a change.
Just like a cup-worthy hockey team, one needs a stellar defence in addition to a robust offence. Indeed, defence can win championships, and the same goes, in my opinion, in the investment world, at least for those with a long-term horizon. And a part of playing defence, I think, is having a portion of one’s portfolio allocated to those great low-beta hedges.
How to play the latest dip in gold?
While I do like the miners after their latest dip (the iShares S&P/TSX Global Gold Index ETF (TSX:XGD) , which is a quick way to bet on the broad basket of gold miners, is down close to 15% from its peak), I prefer physical gold ETFs right now, especially the Sprott Physical Gold Trust (TSX:PHYS), which I think will be quick to get back on its feet after a rough past few weeks for gold prices. If you can time your entry right, I do think there’s considerable bounce-back potential in both investments.
For those seeking to trim risk and play defence, though, the PHYS is the play to go for, given physical gold is less correlated to the broad market than the likes of the XGD, which actually is as volatile as the equity markets. As they say, though, higher risk (and typically volatility), higher reward. For investors seeking a good balance of defence and offence, perhaps going 50/50 in the miners and bullion could be the way to buy the dip in gold.
