When It's Time to Switch to Precious Metals

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.

dbp gold precious metals ratio versus spy

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.

gold precious metals stock switching

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

Stat box

Barring a bad couple of days, the VNQ real estate fund will record its 10th consecutive positive month. That's a record streak since the fund's inception.


Back at it. Small speculators in major equity index futures were nearly net short in mid-July. They've added back since then and are currently holding about $20 billion worth of positions.

small speculator index positions

Small is beautiful. Traders shoveled an average of more than $317 million per day into the IWM Russell 2000 fund last week. That's the highest 5-day average since March.

iwm small cap fund flow

Oil's not slick. Out of all the messages posted on social media about the USO oil fund, more than 30% of them have been negative over the past 10 days. That's the highest percentage in a year.

oil social sentiment twitter

The post titled When It's Time to Switch to Precious Metals was originally published as on SentimenTrader.com on 2021-08-30.

At SentimenTrader.com, our service is not focused on market timing per se, but rather risk management. That may be a distinction without a difference, but it's how we approach the markets. We study signs that suggest it is time to raise or lower market exposure as a function of risk relative to probable reward. It is all about risk-adjusted expectations given existing evidence. Learn more about our service , research, models and indicators.

Follow us on Twitter for up to the minute analysis of market action.

Not ready to signup up for a free trial yet?

Signup for our Daily Lite email to receive highlights of our daily report, research and studies.

Follow us on Twitter:

Subscribe to our Youtube Channel:

RSS Feed

Subscribe to the Blog RSS feed