Example portfolio: short-term positions on gold and silver

Example portfolio: short-term positions on gold and silver

20 December 2019 from Mikael Syding

Portfolio Strategy - Complement with ETPs

ETPs can be used as a complement to a portfolio to hedge a long-term position. In an article series, Anna Svahn and Karl-Mikael Syding will go through four examples of how you can use this type of instrument to boost your portfolio.

Leverage products can be used, among other things, on the following occasions:

- Short-term hedge or boost of existing long-term position in a particular event
- Before a planned news
- After an overreaction to a news item

Short-term hedge in gold and silver: example

Example gold short case: Assume that an unexpected change in monetary policy causes the gold price to fall. You want to stay in your long-term position, but temporarily hedge downside. Then you can buy Vontobel's Mini Future Short Gold which allows you to make money even when the gold price falls.

Example silver short case: The silver price has fallen rapidly for a few weeks but still has some way to go to potential levels of support. You want to avoid being stressed and selling at the bottom if the price goes down and maybe go below the support level, so you buy Vontobel's Mini Future Short Silver in the short term. If the price falls, you plan to use the profit of MIni Futuren to increase the silver position

Examples of gold and silver long: The price of gold or silver has fallen and the pattern fits in with the longer positive trend being intact. You also make the analysis that a continued weak economy will lead to increased incentives but which mainly affect interest rates and asset prices, but not the economy and the companies' profits. You think the accelerated stimuli will give precious metals an extra push upwards in the short term and therefore buy Mini Futures Long Gold and Silver to create extra returns in the short term.

Current analysis of gold and silver

As for all other financial products such moves prices in the short and long cycles. In recent months, the price of gold has moved mainly downwards and is now about 7 percent below the peak in September. It is a fairly normal recoil, but another few percent is still more likely than an immediate upward turn. Not least because of the upward eruption over the past six months from lower levels than today's price.

Here is some perspective on the gold Price

Between 2011 and 2016, gold fell sharply from around 1920 USD / oz to around 1060, and since then has slowly formed a bottom formation, and eventually gained considerable momentum upwards. After the peak in September 2019, the price has corrected a little downwards, but probably not enough to attract bargains. We believe that it is only a matter of time before the price reaches new all time highs in USD, but the question is how long and which way the gold should go. Some believe or rather hope for a decline to the 1360 outbreak level from today's 1460 and others believe it will even drop to 1250 before it turns up. It can of course also have already turned up now in practice, which there is some support for in the course graph, but after all it is only a less important level of support that can very well be broken.

Silver is not our main focus today, but it may be appropriate to mention that the silver price usually goes much like gold with a lag and then the greater the movement. The short trend is downward for silver as well, clearly more aggressive than for gold.

If you are already long gold and / or silver, then it may be a good idea to buy a short-term hedge on the downside, as the short trends point in that direction and there is probably some way to go for stronger support with more potential buyers. The arguments for much higher precious metal prices are markedly long-term and are based on drawn macroeconomic events that do not affect the price in a few weeks' time. Therefore, it may be a good place now to buy downside protection in the form of Vontobel's Mini Futures for the precious metals you own long-term.

Legal notice

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

30/11/2022 08:01:53


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