Is It Time To Buy Gold Stocks As The Banking Crisis Rocked Investors?

Gold stocks hold a valuable place in asset allocation for investors, especially in times of high inflation and economic uncertainty. Investing in gold can be tricky, but one of the best investments to gain exposure to gold is through the S&P Gold Shares ETF (GLD).

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In March, gold bullion and coins, gold stocks and gold ETFs found new strength amid the banking crisis that was unfolding.

Gold futures hit a low on Nov. 3, then started a reversal after the Federal Reserve raised the fed funds rate 75 basis points.

The GLD ETF followed a similar pattern, hitting a 52-week low on Nov. 3, and new highs Thursday. The ETF broke out past a 181.83 buy point, according to MarketSmith pattern recognition.

Gold has been rising on fears of a recession and extended inflation. More recently, weakness in the U.S. dollar attracted investors into gold in March.

“With recent dollar weakness and crisis in the U.S., gold prices have been shooting higher,” says Dan Wantrobski, technical strategist and associate director of research at Janney Montgomery Scott. “And we believe there may be more to go for the precious metal. We are watching for potential resistance targets toward $1,950-$2,000 on gold prices in the weeks/months ahead.”

Will A Surge in Gold Mining Stocks Lift GLD?

Gold provides a natural hedge against inflation and is regarded as a safe-haven investment during downturns in the economy.

The price of gold tends to rise during times of inflation due to its dollar denomination, which offsets the decline in value of the dollar caused by inflation.

It can also be a buffer against a bear market, or in the case of an international crisis. The Russia-Ukraine war is one example.

If the Fed slows or reverses its tightening policy, it could become a bullish catalyst for precious metals stocks.

GLD has outperformed the S&P 500 this year, gaining 8.1% vs. 2.5% for the S&P through Wednesday. Many investors believe gold still has a place in long-term portfolios and indeed in 2023.

A Way To Gain Gold Exposure

GLD is not the same as gold mining stocks, which can be volatile. The ETF aims to match the performance of the price of gold bullion, as quoted in London.

A gold ETF like GLD is only one way to gain exposure to gold. Among the other methods are buying gold itself, through bullion, coin or jewelry, or by buying it as a commodity that can be traded on commodity exchanges.

Another way is by investing in mining stocks like Barrick Gold (GOLD), Franco-Nevada (FNV), Freeport-McMoRan (FCX) or Rio Tinto (RIO).

Barrick Gold (GOLD) is forming a base with a 20.29 buy point. Shares reclaimed the 50-day moving average.

Another alternative is to invest in other ETFs that invest in gold bullion. The iShares Gold Trust ETF (IAU), the SPDR Gold MiniShares Trust (GLDM) or the Aberdeen Standard Physical Gold Shares (SGOL) are good examples.

Other Gold ETFs Can Help

It’s also possible to invest in any of the other ETFs that hold gold as one of many precious metals. Examples include U.S. Global Gold & Precious Metals (GOAU) and Aberdeen Precious Metals Basket (GLTR).

You can also hold an ETF that invests in gold mining stocks, such as the iShares MSCI Global Gold Miners (RING) or the Direxion Gold Miners Bull 2X (NUGT).

But some of these gold alternatives have problems from an investor standpoint. For one, by holding gold bullion, coins or jewelry, investors have to worry about a place to store it, insuring it and the chance of it being robbed.

With trading gold as a commodity, there are several costs involved through the exchanges themselves or through brokers. By investing in mining stocks, investors have to keep in mind that they’re investing in a corporation, which requires paying attention to fundamentals and technical analysis and knowing what other products the mining company is invested in.

A Hedge Against The Rest Of your Portfolio?

In terms of investing in other ETFs that invest in gold bullion, investors have to take liquidity into account. With thinly traded funds, it can be difficult to perform chart analysis. Only IAU, with $27 billion, comes even remotely close to the $56 billion in market capitalization that GLD stock has.

NUGT trades an average daily volume of 2.7 million shares and SGOL trades nearly 2.4 million shares per day. GLDM trades about 1.3 million average daily volume shares, also showing liquidity.

If your goal is to invest in gold as a hedge against the rest of your portfolio, or as a tactical investment, then GLD may be a wise choice.

If, however, your interest is to follow the technical signals of GLD’s chart, there are indeed good times to buy or avoid the S&P Gold Shares ETF.

GLD Technical Analysis: In Buy Zone

The GLD chart is currently in the 5% buy zone reaching to 190.92, after hitting the 181.83 buy point of a long saucer-with-handle base.

Shares gapped up March 17, crossing the buy point in the heaviest volume since the base started. GLD reclaimed the 50-day moving average in heavy volume in mid-March.

Are Gold Stocks Volatile?

The S&P Gold Shares ETF is volatile. Its Relative Strength Rating has climbed to a respectable 85 from 60 a month ago. As a commodity ETF, it has no earnings and also doesn’t pay dividends.

GLD stock also has a high IBD Accumulation/Distribution Rating of A-, which measures the relative degree of institutional buying and selling the stock has experienced over the last 13 weeks.

Just 2% of shares are owned by large investment funds, and 2% by banks, according to MarketSmith. Centerstone International (CINTX), Midas Fund (MIDSX) and WesMark Tactical Opportunity Fund (WMKTX) are the largest fund owners.

S&P Gold Shares can also be used to buy call and put options to generate income. That can be achieved with covered call options, for example. Gold can be unattractive for income investors without a dividend payment. But using GLD options can enable investors to generate income.

Are Gold Stocks And ETFs A Buy?

Although some stocks show buy signals, investors should be cautious about buying. IBD’s current outlook is that the market is in a correction.

ETFs GLD, GLDM, BAR, IA, and SGOL are in their respective buy zones of chart bases and therefore actionable.

Other gold and gold related ETFs are showing improving charts, so watch for proper bases to begin forming.

And for the best stocks to buy or watch, check out IBD Stock Lists and other IBD content, such as how to find the best ETFs.

Follow Kimberley Koenig for more stock news on Twitter @IBD_KKoenig.

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