Gold ETFs: Protecting Yourself from a Selloff
Source: ETF Trends, Tom Lydon (8/24/10)
"This trend won't last forever."
For now, though, the trend is there. Gold moved higher today after it was reported that existing home sales plunged 27% in July. But have gold prices gotten too high? Are we primed for a selloff? Maybe not now, maybe not for awhile. But all trends eventually wind down and investors need to be prepared to act. There are two things you can do.
Consider silver. While gold is in less supply than silver, it's highly correlated with silver. When one is moving up, the other is moving up, too. What's more is that when gold's price is rising, silver's price tends to rise faster. On the downside, silver's price has a tendency to fall faster than gold's. And because silver has a ton of exposure to industry, when economies are booming and factories are producing everything from electronic goods to clothing, silver reaps the rewards.
Have an exit strategy. You need to have a sell strategy in place to protect yourself. A simple strategy we follow is the 200-day moving average. When an ETF falls below its 200-day EMA, we sell. When it rises above its 200-day EMA, we buy. Having a pre-determined sell point will make selling a little easier when it's time to do so; waiting until you "feel" it's time to sell could lead to trouble.
If you don't have time to monitor the movements of gold or silver, consider signing up for alerts. When you do, you'll get an email telling you that a trading signal has been reached so you never miss another opportunity to buy or sell!