Except for several months in 2020, stocks have been outperforming previous metals for most of the last 5 years. There is a great deal of "back and forth" and a low degree of correlation between the two, which is one of the appeals of holding metals in a portfolio.
For those looking for a long-term way to allocate to precious metals, Jay suggested watching the ratio between DBP and SPY along with its 156-week (3-year) exponential moving average.
The black line ("Switch") in the chart below represents the hypothetical return achieved by holding DBP if the ratio is above its average and SPY if it's below its average. The blue line ("Buy/Hold/Rebalance") in the chart below represents the hypothetical return achieved by holding 50% in DBP, 50% in SPY, and rebalancing to a 50/50 split at the beginning of each new year.
The good news is that the simple switching method detailed above handily outperformed buy-and-hold over the past 14+ years. The bad news is that past performance does NOT guarantee future results.
But if nothing else, this simple approach may well serve an investor contemplating whether to allocate money to precious metals or the stock market by considering the current status and trend of the DBP/SPY ratio.
What else we're looking at
- More details on a precious metals/stock switching strategy
- Looking at a Bollinger Band buy signal system in Taiwan
- The smart money has been building a position in one precious metal
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The post titled When It's Time to Switch to Precious Metals was originally published as on SentimenTrader.com on 2021-08-30.
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