My No. 1 Sector To Hedge Against Election Volatility

You don't need me to tell you that America and much of the world feels like a pressure cooker these days.

Even before former President Donald Trump escaped assassination by an inch last week, election-related polarization and uncertainty had rattled investors. There's no shortage of grim headlines from abroad to spook markets, with geopolitical uncertainties in Eastern Europe (Ukraine), between China and Taiwan and (especially) in the Middle East.  

So far, the broader markets have held up in the face of positive inflation data. But if any of the geopolitical uncertainties flare up, the "safe havens" are going to rally.  With this in mind, I am very bullish on gold and the gold mining stocks.  

Why Central Bankers Are Buying Gold 

Global central banks have been buying gold hand over fist for a long time now.  

This has been especially true for the People's Bank of China, which has taken its holdings to over 72 million troy ounces recently, up from 62 million a year-and-a-half ago.  

China has been trying to diversify funds and cut its dependence on the U.S. dollar for some time now, so this has played a big role in the advance of the yellow metal during the last part of 2023 and the first four months of this year.  And while China pulled back its buying just over a month ago, there are now signs this precious metal will rally further over the rest of this year.  

China is not the only central bank that has been buying gold.  They have been buying gold consistently for more than a dozen years, and they now own about 17% of all gold that has ever been mined. So, when you combine the uncertainties that exist around the globe today with the strong demand from many parts of the world, the outlook for gold is quite bullish.

If you look at the chart on gold, it has broken well above the top line of an "descending triangle" pattern recently. More importantly, it is now testing its all-time highs from this past spring. Therefore, if gold can follow the recent breakout of its triangle pattern with a meaningful break above its all-time highs, it's going to be extremely bullish for the commodity on a technical basis as well.  

We are seeing a very similar move for silver. It has broken above its multiweek trend-line. It's not as close at gold is to breaking above its 2024 highs, but it's still quite close. Therefore, if it breaks above that closing high of $32.10 in any significant manner in the coming weeks, it's going to be very bullish on a technical basis for this precious metal as well. (Note that silver's all-time high of $48 came in 2011.)

 So, unlike gold, a break above its 2024 highs will not give it a record high. Yet it will still give it the kind of important "higher-high" that will be very bullish for the commodity.

As investors decide how to take advantage of an upside breakout for gold, they should consider the gold mining stocks. History tells us that when gold breaks above a key resistance level, the gold miners outperform in a significant way.

If you want more of my stock picks, click here.

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