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Forget the Fundamentals on Gold

One of the biggest catalysts for a strengthening in the price of gold may well be a selloff in stocks. If we see further volatility surrounding the debt ceiling deadline or a rapid change in the belligerent enthusiasm for stocks, it may provide a bid for precious metals like gold and silver as a safe-haven trade.

How to Play Gold for the Rest of the Year

My recommendation for investors in this space is to play precious metals through small exposure with an eye towards risk management. The fundamental drivers for gold have not been a factor in supporting prices this year, which means that technical and headline-driven dynamics will most likely take precedence.

There is still plenty of room for violent price moves in either direction, which is why I am cautious about adding exposure right here. I would prefer for GLD to regain its 50-day moving average and for a more discernible trend to develop before diving back in.

I am continuing to advocate staying away from gold miners because of their heightened levels of volatility combined with compressed margins on production costs.

Speculative investors that want more aggressive exposure may consider using a leveraged ETF for a quick trade with a tight stop loss to guard against downside risk.

Caution is warranted at this stage of the game, but there will be a time when gold prices come back into favor and being on the right side of that trade will lead to healthy profits.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

David Fabian is a managing partner at FMD Capital Management, a fee-only registered investment advisory firm specializing in exchange-traded funds. He has years of experience constructing actively managed growth and income portfolios using ETFs. David regularly contributes his views on wealth management in his company blog, podcasts and special reports. Visit www.fmdcapital.com to learn more.
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