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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Gold (GLD)

December 4th 2016

Gold ETF
NYSE Symbol: GLD
Industry: Commodity
Price as of 12/2: $112.14                               

 

What a difference an election makes. With the surprise victory for Donald Trump, the averages have surged to new highs. The Dow and the S&P 500 have rallied 6%. The Nasdaq rallied 8%, but gave up some of those gains in the last week and a half due to healthcare and big cap techs, a.k.a FANG stocks. The big winner so far is the Russell 2000 up 17% after being unchanged for the year. The Russell 2000 actually rallied for 15 straight days. The big winner among US sectors has been the financials. After the first six months of the year, the banks were the worst performing sector, negative for the year. Fast forward five months and the financials are the third best performing sector up 17% year to date. The rally has been fueled by optimism that Trump's pro-business stance will lead to less regulations, lower taxes, higher interest rates and an acceleration in economic growth. Trump got off to a good start by negotiating with United Tech to keep 1000 Carrier jobs here in the US and not move them to Mexico. An amazing three weeks, but the chances of everything going smoothly for Trump seems unlikely.

With the markets seemingly extended at this point, one commodity stock that looks attractive is gold (GLD). Gold had a great start to the year rallying 20% in the first three months. The commodity proceeded to move sideways for the next seven months and then with the surprise election, gold went into free fall dropping 10% while virtually everything else moved up.  

But there are indications that the smart money is buying back into gold. On Thursday, one investor bought 25,000 contracts of the March 125 calls in one print for $0.70. A pretty aggressive move. This $1.75 million investment has to rally 12% in the next four months just to break even.

This trade seems to be off to a good start with the Italian Prime Minister Matteo Renzi saying on Sunday he will resign after suffering a humiliating defeat in a referendum over his plan to reform the constitution, throwing the country and the euro zone into confusion. Next week we'll have the Federal Reserve raising interest rates for the second time this year. Then it's inevitable that President elect Trump will tick off the wrong person or the wrong country with one of his actions or tweets. China seems to be in Trump's cross-hares. Maybe that's justifiable, but any confrontation could create some volatility in the equity markets.

Any investor looking to hedge their equity positions or possibly invest in something that will move inversely to the equity markets may want to look at Gold (GLD).