Gold and Silver Corrected, Agriculture Commodities Strong

by: MyPlanIQ

Last week, Gold and Silver (GLD and SLV) had a sizable correction. Agriculture commodities (NYSEARCA:DBA) and energy (DBE, USO, UNG) rose. For more detailed performance, refer here.

It is noticeable that gold (NYSEARCA:GLD) is now ranked close to the bottom in the commodity trend table, below. In fact, since the beginning of 2011, GLD has experienced -4.3% return. As the economy continues to recover and the U.S. dollar (NYSEARCA:UUP) is temporarily strong, investors might feel stocks are a better bet than precious metals in the recovery phase. However, once economy starts to experience difficulty, gold will be strong again as we all know that the government is determined to use loose monetary policy to stimulate the growth, thus raising the inflation expectation. In such a period, stocks and gold will be able to hedge with each other.

The trend score is based on the following formula: for an ETF or index, we use the average of 1, 4, 13, 26 and 52 week total returns (i.e. dividend and distribution reinvested). We then rank them based on the scores to derive the following trend table. Notice the average of the total returns would overweight the recent price movement. This is similar to exponential moving average.

Assets Class Symbols 01/14
Silver SLV 25.02% 26.09% v
Agriculture DBA 15.53% 11.88% ^
Commodity DBC 12.82% 7.98% ^
Base Metals DBB 12.17% 9.09% ^
Energy DBE 10.54% 4.16% ^
Precious Metals DBP 9.2% 9.28% v
US Oil USO 6.25% 0.51% ^
Gold GLD 6.18% 5.84% ^
Natural Gas UNG -8.5% -11.58% ^

Notice that commodities are very volatile, thus a long term investor should definitely not be carried away with their short term movements. Portfolio strategies that tactically change the exposure to commodities are more effective than those that are static. At the moment, commodities exhibit both fundamental (anti-inflation) and technical (long term up trend) merits.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.