Explore Your Options by Tom Gentile
GOLD & INFLATION
Question of the month: If you believe the markets are due for a pullback, yet still pose a lot of risk, how can you play inflation if it creeps back in to the economy?
One word: gold. Gold has been a great play for inflation, and that it’s at lows while the market is at all-time highs tells us it’s acting more like a “risk-off” commodity, meaning that it moves inversely to the price of indexes.
As I write this, gold is trading at three-month lows and is one of the only sectors that are not moving higher as of mid-2014. What’s amazing is that almost everything else has been moving up in a period during which I expected a pullback for several reasons, including:
• Technically oversold—Wow, where do I start? Most oscillating indicators such as moving average convergence/divergence (MACD), stochastics, and various oscillators are in the sell zone for the indexes as I write this. Volume has been lagging as prices move higher, which is typically bearish, and even contrarian indicators, such as Elliott wave, and swing indicators, such as Fibonacci levels, suggest a lower move.