Eric Steiman is a manager at Clearbrook Capital Advisors, which is the investment manager of the Undervalued Opportunities portfolio. Clearbrook is known for implementing a fairly aggressive trading style and the portfolio is one of the most popular among the Covestor community on our investment marketplace.
He describes Clearbrook’s investing philosophy as a mix of fundamental and technical analysis. In other words, the investment decisions are driven by a combination of research on economic conditions (fundamentals), as well as supply and demand trends based on chart patterns, trading volume and sentiment (technicals).
We caught up with Clearbrook’s Steiman to discuss the recent purchase of SPDR Gold Shares (GLD) in Undervalued Opportunities portfolio, and his outlook for precious metals.
He said a big reason Clearbrook bought gold in the portfolio has to do with the technical picture.
“Looking at the longer-term chart, there could be an inverse head-and-shoulders pattern in gold, which is a potentially bullish pattern,” Steiman said. “And we saw heavy trading volume during that gold breakout last week.”
SPDR Gold Shares
Clearbrook is also using gold as a hedge as U.S. stocks continue to climb to new record highs.
“It has obviously been tough for short sellers betting against stocks,” Steiman said. “We’re adding gold rather than shorting stocks here. If stocks fall, gold typically rallies – that’s our thought process.”
The S&P 500 has posted a total return of about 7% so far this year, while the gold ETF has gained roughly 9%.
U.S. stocks continue to grind higher and the market withstood a report this week that first-quarter GDP was revised lower as the economy contracted at a 2.9% annual rate. Many economists are blaming the decline on the cold weather during the first three months of the year.
And stock investors don’t seem too concerned either. Trading volume typically falls off during the summer but the market has been almost eerily quiet lately. In fact, it has been nearly 50 trading days since the S&P 500 has experienced a 1% daily move – the longest streak in over two decades.
“As for volatility – well, Elvis has clearly left the building on that one,” said ConvergEx Group analysts in a note Thursday.
CBOE Volatility Index
“The VIX is very low, the market could be overstretched and we have some potential macro events that could potentially get in the way of stocks. Things like further developments in Iraq and other geopolitical concerns. Gold may do well in that case,” said Steiman.
“On the U.S. stock market, we’re being cautious up here. We’re not really bearish or bullish, just being cautious. It’s not psychologically easy to buy at all-time highs,” he added.
That’s why Steiman views the gold ETF as a hedge for the stock holdings of the Undervalued Opportunities portfolio.
Finally, gold could get going if inflation finally starts to heat up due to ongoing easy monetary policies from central banks. Consumer prices in the U.S. climbed more than 2% in May from a year earlier.
“The latest CPI reading came in hot. Prices are rising and that could help gold. You certainly see food prices rising, which may hurt some businesses,” Steiman said. “Gold could end up mirroring some of the price increases we have seen lately.”
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DISCLAIMER: The information contained in this article is general in nature and not intended as specific advice. The investments discussed are held in client accounts as of June 25th, 2013. These investments may or may not be currently held in client accounts. You should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions made by portfolio managers in the future will be profitable. Past performance does not guarantee future results.
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