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. Follow @fabiancapital This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV