Given the recent pullback in gold, yesterday I increased my position in iShares Gold Trust (Ticker: IAU) to ~5% of my IRA. The reasons for my increasingly bullish position are the following:
(1) Gold has pulled back almost 10% since its end of February peak.
(2) I do not believe aggressive US monetary policies have ended, and in fact the current policies remain quite expansionary.
(3) I do not expect the US economy to accelerate from here. If anything, I expect at least a few more bumps in the road later in the year. As I detailed in the post about Okun's Law, I believe the current health of the economy is much more about monetary policy driving supply growth, instead of fundamental consumer demand growth.
I am also keeping my eyes on treasuries and may establish a long position if yields on the 30-year rise above 3.5%. If my Sagflation theme plays out then I expect increasing deflationary pressure over the next couple years, unless the Federal Reserve begins aggressively adding to the monetary base through treasury purchases. In either case, I believe yields on the 30-year treasury have at least one more trip well below 3.0%.
Another segment is natural gas. I continue to consider possible plays on the low prices of natural gas, and the likely rebound in prices, in my view. Playing gas prices through an ETF proved quite inefficient and thus I am considering equity positions in natural gas companies. However, I feel a need for patience until the natural gas market firms up a bit more and stocks like Chesapeake (Ticker CHK) and Encana (Ticker ECA) to fall further. At this point I believe these stocks are lifted more by broad market trends than actual fundamentals.
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