Gold: Know When The Fear Trade Is Over

The fear trade that drove capital short term into precious metal relative securities is over.

Momentum energy on technical and fundamental noise is tiring.

Longer-term drivers of capital to risky assets remain in place and are a drag against gold.

Time to take profits and remove excess hedges in gold and silver and relative securities.

Bad case scenarios did not play out relative to the strike on Syria, so gold should give back relative gained ground now as momentum and technical price chasers lose the tangible driver behind nascent support. If you followed our simple, prescribed hedging strategy, the redeployment of capital back to risky assets should not have proved costly for nimble traders. Moving forward, U.S. equities and the US dollar should gain favor on the back of a strong corporate earnings season driver I anticipate - Cue the Rally.

Without the play of the significant geopolitical factor risk that was just averted, gold and silver should be sidelined near term. The full year for precious metals also has a significant weight against it given economic traction, but we remain attuned to relative foreign affairs and trade policy developments, along with the progress of inflation and the economic cycle for opportunities. Stay tuned to the column, because we see another possible short-term positive coming for precious metals in May.

Gold & Silver Securities Served Their Purpose

World War III did not break out over the Syria strike. Gold should give back any relative ground gained now as a result of defused concerns. If you followed the guidance of this column, you can still take your portfolio protection off now without much cost and perhaps with some profits booked.

GLD data by YCharts

The SPDR Gold Trust (GLD) gained ground recently on the relative fear trade, as a confrontation between the U.S. and Russia could have threatened the U.S. dollar and driven capital to alternative assets such as gold, silver and relative securities.

The precious metals complex also enjoyed a week plus worth of prosperity, but was starting to lose its energy into Thursday's trading. Support has remained in the securities until now as GLD appeared to approach an important technical price point. Perhaps a few technical trading purists, not understanding the fundamental factor importance here, continued to chase and support gold and silver this week.

And perhaps some fundamental factor followers tracked the trade and attributed ongoing gains to softer influences like uncertainty around China trade developments, the repercussions of Russia tensions, political scandal and just about any reason writers could dream up for lingering relative strength in precious metals. Don't be fooled though, the fear factor is diminished.

Know When To Close The Fear Trade

With fear appeased and risk back on, U.S. equities and the dollar should draw capital as earnings season proves out U.S. economic strength. Precious metals lose relative favor, as their value-add toward relative portfolio protection is removed and as the U.S. dollar likely benefits from U.S. economic strength.

Gold Comes Full Short Cycle

Last week, we suggested gold and silver had optionality, or special upside opportunity. We went a step further and provided the SPDR Gold Trust as our pick to place bets or to hedge risk against a U.S. vs. Russia possible confrontation over Syria. We said that if the worst were to occur, the security would enjoy upside and provide an effective hedge to portfolio risk.

We also noted that if the more likely scenario played out, and reasonable minds avoided such a dangerous confrontation, then the GLD security should be easier to get out of without costing us much, unlike levered precious metals securities like the Direxion Daily Gold Miners Bull 3X and illiquid physical metals.

Take Short-Term Profits, Close Hedges In Gold & Silver

I believe opportunity to take your trading profits out of these securities and/or remove excess short-term hedges without much cost is fading. It's time to enjoy risk assets once more. I anticipate gold and silver relative securities will give back nascent gains near term. Developments foreseeable for May could renew short-term interest in the metals in a few weeks, and I will update readers ahead of time if/when I think that is the case. For all of my work on the markets and sectors of it, readers are welcome to follow the column here at Seeking Alpha.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.