BMO Canadian ETF Dashboard

— as of November 30, 2018 —

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When Will Gold Shine Like Gold?

Larry Berman

When Will Gold Shine Like Gold?

Snapshot

As a value-tilt or growth-at-a-reasonable-price investment, gold equities are a compelling BUY BUY BUY. Fundamentally, valuation is at a multi-decade low; tactically, all sorts of flight-to-safety potential.

Details
BMO Equal Weight Global Gold Index ETF (Ticker: ZGD)
BMO Junior Gold Index ETF (Ticker: ZJG)

Benefits

  • I’m not a gold bug, so I don’t think gold should always be in a portfolio. However, it’s an asset class that is low or negatively correlated to everything else. That makes it a compelling asset class to use in portfolio construction.
  • Volatility is high and tactical entry must be good for the return to risk ration to be compelling.

Trade Idea

Gold and gold equities have been hit hard in 2018 until recently. Strong US-dollar policies and rising rates are often gold’s worst enemy. Looking forward, while the Federal Reserve gets closer to its terminal rate hike in 2019, other central banks have not even started. In particular, Japan, Europe and China have been in easing mode for years. That could change in 2019 with Germany taking over the European Central Bank in October, and Abenomics in Japan focused on reforms and now immigration to grow and come off a negative interest rate policy.

A weaker dollar at some point is gold bullish, in addition to a potential recession in the U.S. as the yield curve inverts and the credit expansion reverses, cracking the liquidity bubble supporting asset markets. Our return-to-risk models see the potential for gold equities to test the highs of the past few years, leading to 30-40% upside potential with very little downside risk, given the massive degree of intrinsic value in 35-year low valuations.

We could see a return to a gold standard within the next 25 years, as Central Banks turn to a more permanent debt monetization in the next and subsequent recessions in the years to follow. While our more tactical call for 30-40% upside looks to the end of 2019, we could be seeing base patterns building to last a decade or more – yummy food for thought from a value or growth at a reasonable price perspective.

Nov-2018-L.-Berman-Graph.png#asset:1809


Outlook

Since BREXIT in June 2016, gold equities have underperformed world equities by approximately 50%. We need only recover a fraction of that decline in the next RISK-OFF market, and there are all kinds of those in front of us. BREXIT 2.0 is a high probability too. During periods of weakness in the coming months, consider BUY BUY BUY, as some other famous TV personality likes to say. It’s our biggest sector overweight in all three of our funds* by a mile.

Buy gold equites in your portfolio and sleep a bit better at night.

 

* BMO Tactical Global Growth ETF Fund, BMO Tactical Dividend ETF Fund and BMO Tactical Balanced ETF Fund. Click here to view the Third Quarter Commentary to September 30, 2018.

Larry Berman

When Will Gold Shine Like Gold?

Snapshot

As a value-tilt or growth-at-a-reasonable-price investment, gold equities are a compelling BUY BUY BUY. Fundamentally, valuation is at a multi-decade low; tactically, all sorts of flight-to-safety potential.

Details
BMO Equal Weight Global Gold Index ETF (Ticker: ZGD)
BMO Junior Gold Index ETF (Ticker: ZJG)

Benefits

  • I’m not a gold bug, so I don’t think gold should always be in a portfolio. However, it’s an asset class that is low or negatively correlated to everything else. That makes it a compelling asset class to use in portfolio construction.
  • Volatility is high and tactical entry must be good for the return to risk ration to be compelling.

Trade Idea

Gold and gold equities have been hit hard in 2018 until recently. Strong US-dollar policies and rising rates are often gold’s worst enemy. Looking forward, while the Federal Reserve gets closer to its terminal rate hike in 2019, other central banks have not even started. In particular, Japan, Europe and China have been in easing mode for years. That could change in 2019 with Germany taking over the European Central Bank in October, and Abenomics in Japan focused on reforms and now immigration to grow and come off a negative interest rate policy.

A weaker dollar at some point is gold bullish, in addition to a potential recession in the U.S. as the yield curve inverts and the credit expansion reverses, cracking the liquidity bubble supporting asset markets. Our return-to-risk models see the potential for gold equities to test the highs of the past few years, leading to 30-40% upside potential with very little downside risk, given the massive degree of intrinsic value in 35-year low valuations.

We could see a return to a gold standard within the next 25 years, as Central Banks turn to a more permanent debt monetization in the next and subsequent recessions in the years to follow. While our more tactical call for 30-40% upside looks to the end of 2019, we could be seeing base patterns building to last a decade or more – yummy food for thought from a value or growth at a reasonable price perspective.

Nov-2018-L.-Berman-Graph.png#asset:1809


Outlook

Since BREXIT in June 2016, gold equities have underperformed world equities by approximately 50%. We need only recover a fraction of that decline in the next RISK-OFF market, and there are all kinds of those in front of us. BREXIT 2.0 is a high probability too. During periods of weakness in the coming months, consider BUY BUY BUY, as some other famous TV personality likes to say. It’s our biggest sector overweight in all three of our funds* by a mile.

Buy gold equites in your portfolio and sleep a bit better at night.

 

* BMO Tactical Global Growth ETF Fund, BMO Tactical Dividend ETF Fund and BMO Tactical Balanced ETF Fund. Click here to view the Third Quarter Commentary to September 30, 2018.