There's a lady who's sure all that glitters is gold so why doesn't she have it in her portfolio?
Yes, there are two paths you can go by...
The world's most precious metal is not only a safe haven when stocks are falling, it is also a classic hedge when inflation expectations are rising. Yesterday's update from the Federal Reserve Bank in the United States revealed that they are willing to allow inflation to surpass their earlier target of 2%.
And it's whispered that soon, if we all call the tune then the piper will lead us to reason and a new day will dawn for those who go long and the markets will echo with laughter.
In a word, she can get what she came for. There are signs are on the wall but if you want to be sure. Someday all of our portfolios will be diversified.
It makes me wonder...
Today's Highlights
Here Comes Inflation
Getting Technical on Gold
Stairway to Crypto
Please note: All data, figures & graphs are valid as of May 3rd. All trading carries risk. Only risk capital you can afford to lose.
If you listen very hard
The lead into the Fed announcement (purple circle) was rather positive but once the FOMC statement was released we can see in the Dow chart that the markets quickly returned to the monthly lows.
Even though many see the announcement as unimportant, the impact of what the Fed is saying is rather large. For years they have had their sights set on annual inflation just under 2% but not to overshoot.
To be clear, the Fed doesn't exactly control inflation. They simply introduce new money into the system, then they can try to curb inflation by raising interest rates.
So by saying they're willing to allow inflation to go over 2% they want the markets to hear that they won't be in a rush to raise interest rates. A careful listener, however, might infer that the Fed is actually expecting inflation to grow further from here.
So in the medium term, over the next few years, we are likely to see the Fed continue to raise their rates, especially if inflation gets stronger. And the markets don't like that.
The Dollar does like it though. Here we can see the Dollar strength has continued as the US Dollar Index reached new highs shortly after the announcement.
How everything still turns to gold
At eToro, we can also see that people have been steadily adding gold to their portfolios over the last year and a half.
These four charts show client profitability in gold, the direction they're going (long/short), total volume, and the number of traders.
Notice the bottom two charts growing very steadily in the last few months as more traders get involved.
From a technical standpoint, we may not be at the bottom just yet. There is a strong psychological level of $1,300 an ounce (lower yellow line) that could likely be broken to the downside.
The question most traders are asking is, should I get in now at the bottom of the range (yellow lines), or do I wait for a break below and get in near the long-term trend line (blue)?
The answer probably depends on your intended holding time and how far you're willing to place your stop loss but of course, there isn't much harm in doing a little now and a little later or some good old-fashioned Dollar Cost Averaging.
If there's a bustle in your hedgerow...
Of course, the usual disclaimers apply and there's no guarantee of incoming inflation or gold prices rising long term. And as always, be sure to diversify your portfolio as much as possible. Many advisors recommend having between 2% and 20% of your portfolio in gold according to personal taste.
This investor, for example, feels very comfortable with 50% of his equity in gold, which is a bit overboard for my taste.
How everything still turns to gold
...digital gold.
The price of cryptos has been rising pretty steadily over the last month and the price of Ethereum has punctured the $700 mark this morning.
Many are still waiting for BTC to cross the 10k mark for further confirmation.
It seems that the enthusiasm around crypto is expanding again and many were excited to see the New York Times announced that Goldman Sachs (NYSE:GS)' cryptotrading desk will be ready within the next few weeks.
We all knew it was coming but it's great to see the news going mainstream.