Gold ETF Investing: Positioning Long in GLD

By Richmond Quantitative Advisers

Although we at Richmond Quantitative Advisors (“RQA”) are not “gold bugs” by any stretch of the imagination, we now believe that long positions in gold are likely a good directional bet over the intermediate to longer-term, particularly given: i) a favorable macro fundamental risk/reward backdrop; ii) steady (and likely increasing) international tensions; and iii) a diverse set of momentum and trend-based signals indicating the potential for a major move higher.

Key Points & Considerations

As a backdrop, we take a viewpoint of each asset class as it is structured to perform during the four macro-economic environments the U.S. can exhibit – inflationary economic growth, deflationary economic growth, inflationary economic recession, and deflationary economic recession.  Accordingly, we view the asset allocation approach should start with this framework, and from there, we actively tilt based on economic and behavioral factors to capture full exposure to those assets that exhibit the highest probability of outperformance going forward.   We join fundamental and economic data with current trends taking place across asset classes. More specifically we deploy an ensemble of momentum based metrics to assess capital flows and further improve our viewpoint and potential exposure to each asset class. As we continuously monitor these asset classes, gold has started to increase its attractiveness from a probability of outperformance standpoint.  Key discussion points and consideration regarding a gold investment are set forth below.

  • Gold remains a great risk/reward trade given several potential macro conditions:

Inflation Linked Conditions:

  • If inflation stays low, rates will likely remain low or even fall globally, leading to further long-term currency depreciations, and in turn, incremental value tailwinds for gold. Moreover, if rates move lower, the opportunity costs of owning gold will also continue to decline. (Positive)
  • On the…

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