This Research Can Help You Time Your Gold and Silver Inflation Hedge

By TradeSmith Editorial Staff

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Inflation has grabbed a lot of headlines recently as last month’s Consumer Price Index (CPI) jumped 6.2% year over year. That’s the highest rate of inflation in 30 years!

One traditional way to protect your investment portfolio from inflation is to include some exposure to precious metals. Gold and silver tend to rise in value during periods of accelerating inflation.

There are several ways to accomplish this, including:

  1. Physical gold or silver bullion and/or coins
  2. Exchange-traded funds (ETFs) designed to track precious metals prices
  3. Investing directly in gold and silver mining stocks, either individually or through an ETF
For instance, if you decide to go with gold or silver ETFs, there are the SPDR Gold Trust ETF (GLD) or the iShares Silver Trust ETF (SLV).

Both are good, low-cost ways to quickly and easily get exposure to gold or silver. Plus, both ETFs are backed by physical gold and silver bullion held in vaults.

Gold and silver mining stocks and ETFs don’t give you direct exposure to the precious metal itself. But they can deliver leveraged returns.

Examples of liquid ETFs that track gold and silver mining stocks include the VanEck Vectors Gold Miners ETF (GDX) and the ETFMG Prime Junior Silver Miners ETF (SILJ).

Many times in the past, mining stocks and ETFs have outperformed physical gold and silver in terms of upside appreciation, sometimes by a wide margin. Of course, this can also cut both ways. When gold and silver prices fall, it’s quite possible that mining stocks and ETFs will decline even more.

That’s why timing is an important factor to consider when trading gold and silver stocks or ETFs. And on that note, I have good news for the gold and silver bulls.

Last week we published our November Timing by TradeSmith Report exclusively for Timing subscribers. And it shows us that the trend may be turning up for gold and silver.

The monthly Timing Report is based on the idea of market cycles. Cycles are simply repeated patterns of peaks and valleys. We analyze price histories of stocks, commodities, ETFs, and even the entire market to find these cycles and identify the patterns of ups and downs.

Of course, stock prices can and do fluctuate, sometimes wildly. And if you only look at day-to-day prices, you probably won’t be able to see a meaningful pattern.

Instead, we take a high-level view of a stock’s price history to identify the most consistent overall patterns. Our analysis reveals four significant cycle lengths that are worth tracking:

  • Short-term cycle: 20-40 days
  • Middle-term cycle: 41-100 days
  • Long-term cycle: 101-300 days
  • Very-long-term cycle: More than 301 days
In our monthly Timing reports, we tend to focus on the middle-term and long-term cycles, which give us the right range to identify potential long-term investment trends.

Now, circling back to precious metals. The good news is that our November Timing Report picked up fresh potential uptrends just ahead for both gold and silver. Take a look…

As you can see by the purple line in the chart above, GLD is nearing the end of a very-long-term valley area, which strengthens the odds of GLD taking off to the upside soon.

Meanwhile, SLV has just exited a long-term valley area and is poised to continue growing through January, as shown in the chart below. This would confirm our forecast for GLD.

But the bad news is that both GLD and SLV remain stopped out in the Red Zone. And according to our risk management principles, we must wait for a new entry signal before buying either GLD or SLV.

However, SILJ is in the Green Zone! Although it has been in a downtrend, its Smart Moving Average looks like it could soon turn upward. See for yourself…

Our composite cycle, a combination of all four cycle time frames, is turning higher, forecasting a potential rally for silver mining stocks into January 2022.

It’s not uncommon for mining stocks to turn higher even before gold and silver prices do. In this case, the strength of SILJ may be foreshadowing a health upgrade for GLD and SLV soon.

Keep in mind that these cycles don’t always play out perfectly. But the more cycle lengths that agree with each other, the higher the conviction of the turn area — in the case of SILJ, conviction registers at a medium level.

So, to get in early on a fresh potential uptrend in precious metals, you may want to consider taking a stake in SILJ.

And I’ll be sure to let you know when we get a clear entry signal for GLD and SLV, too.