2 picks for gold traders
With the Fed still buying mortgage-backed securities and the possibility of rising inflation, the yellow metal is poised for gains.
Our stock picks are based on a strategy known as "expectational analysis," which combines fundamental, technical and contrarian-based sentiment metrics.
Based on this approach, I initiated a long position in the SPDR Gold Shares Trust (GLD), which tracks gold bullion, as well as in gold miner Royal Gold (RGLD).
Price action on GLD has been strong over the past several years as the commodity has climbed from the $80 level dating back to 2009.
Additionally, GLD is pulling back to its 320-day moving average. This trend line has shown significant support in the past and GLD has bounced from it recently.
Option activity has also begun to pick up as the number of calls and puts over the last 20 days has increased significantly. Finally, the recent election results leave plenty of upside for the precious metal.
With the Federal Reserve continuing to purchase mortgage-backed securities in the open market, and with the possibility of rising inflation due to the increase of money flow, we expect gold prices, alongside other major commodities, to be driven higher.
Royal Gold has also been strong lately as the equity has climbed about 50% over the past six months and 34% year to date.
Demand for major commodities, especially gold, has been high lately, as investors are flocking to the precious metal as a hedge against fears of rising inflation. This increased demand could bode well for companies such as RGLD that acquire and manage the precious metal.
Recent, bearish speculation has increased on RGLD as the 10-day, bought-to-open put/call ratio stands at 1.66. This ratio stands in the 95th percentile of all ratios within the last 52 weeks and indicates an unusually high number of bearish bets against the equity.
Furthermore, large put open interest resides at the $85 and $87.50 strikes for the November and December series. These levels could provide support going forward.
Finally, analysts maintain four holds and merely one buy rating on the company. Continued demand for gold could lead to future upgrades, which could help to drive the shares higher.
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VIDEO ON MSN MONEY
DELMAR FAIRCHILD:You need to pull your head out of the sand.This isn`t 1980.Most of the media bent over backward protecting the Bush administration.If Bush were a Dem our media would have
pushed impeachment daily.
Just about the only people making money off gold are the snake oil salesmen on TV
trying to scare people.The Dow is up from 8158 four years ago.The mostly right wing
media these days won`t you that.
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