By Nigam Arora
There’s no vaccine for the coronavirus and few treatments for those who suffer from it.
For investors, there are only a handful of antidotes to the fallout of the pandemic virus. One is gold /zigman2/quotes/210034565/delayed GC00 -0.50% .
Let’s look at the relationship between stocks and gold.
Please click here for a long-term monthly chart of the Dow Jones Industrial Average ETF /zigman2/quotes/208954582/composite DIA -0.02% , which tracks the Dow /zigman2/quotes/210598065/realtime DJIA -0.07% . For the sake of transparency, this chart was previously published, and no changes have been made.
Note the following:
• You do not need any special expertise to make a simple observation from the two charts.
• The first chart of the stock market shows a potential topping pattern.
• The second chart that represents gold shows a potential bottoming pattern.
• Consider comparing the second chart to charts of your favorite stocks, such as Apple /zigman2/quotes/202934861/composite AAPL -0.10% or Amazon /zigman2/quotes/210331248/composite AMZN +1.72% . You will reach the conclusion that these popular stocks have a topping pattern.
• The second chart shows that the volume in the gold ETF is not high. In traditional technical analysis, this is considered negative. However, in my view, based on my over 30 years of experience, this is a positive. The reason is that the low volume shows that gold has not yet gotten the attention of stock market investors and is under-owned. If gold were to catch the attention of stock market investors, there is a long runway ahead.
• If gold catches stock market investors’ attention, there is the potential of a repeat of what happened in 2007.
• In 2007, when the Arora buy signal was given to back up the truck and buy gold, as shown on the chart, nothing happened for a few months.
• A few months after the Arora signal, gold took off. Investors more than tripled their money.
• Many investors are familiar with my long track record. Those who are new, before sending me hate mail accusing me of being a gold bug, take another look at the second chart. I gave a sell signal to sell half of gold holdings at $1,904 at a time when the near-universal calls were to buy gold. Fortuitously, the signal to sell gold was given in the early morning of the day when gold topped a few hours later before a major pullback.
Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.
When and how to buy gold
Investors ought to bring some sophistication to their investing. The second chart shows the resistance zone and RSI (relative strength index) divergence. (I will be discussing this more in a future column.)
As a pre-caution, do not rush out to buy gold, the iShares Silver Trust /zigman2/quotes/205744453/composite SLV +2.90% or VanEck Vectors Gold Miners ETF /zigman2/quotes/206399889/composite GDX +0.94% . Gold can be treacherous for the uninitiated.
Answers to your questions
Answers to many of your questions are already in my previous writings. You can access some of them here.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. <INTERNAL-PAGE URL="/author/nigam-arora">Nigam Arora</INTERNAL-PAGE> is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.