Edoardo Fusco Femiano, CFTe
Independent Analyst
- How would you diversify an investment portfolio through the following asset classes ahead of the Election?
Base Portfolio:
US Dollar 20%
Commodities 20%
Equities 40%
Bonds 20%
In addition, my base scenario over the next two month is a 25 bps Fed’s hike in December and Clinton’s win in the upcoming US Elections. However, in anticipation of potential unexpected volatility, I suggest adjusting positions as follows:
“Before-Election” Portfolio:
US Dollar 15%
Commodities 25%
Equities 35%
Bonds 25%
Motivations: Despite Trump’s victory is now unlikely, I would tactically:
- Reduce USD weight, as a Trump victory would potentially mean a weaker dollar
- Increase exposure to commodities, in particular Gold and Silver. Despite recent pullbacks, they are among the best performers YTD and could find key support areas represented by the 100 WMA, 1.200 (Gold) and 16.40-16.60 (Silver)
- Increase exposure to US Treasuries
- Reduce equities exposure, in particular European ones, which are overall moving laterally, due to modest economic growth and a set of unpredictable political headwinds.
- Do you foresee any trading opportunities ahead of the Election?
Markets are increasingly focusing on spreads widening among sovereign bonds and on rising, though slightly, inflation across the board, due to rising prices of raw materials. Central banks are also clearly stating that current monetary policy measures are reaching their own limits. Therefore, despite a very probable 25 basis points hike in December, the US Dollar can hardly remain the only inflation hedging tool available.
Despite recent pullbacks, Gold and Silver are among the best performers on a year to date basis and are now both reaching key supports. On a weekly chart, they both could find support around the 100 WMA, at 1.200-1.225 (Gold) and 16.40-16.60 (Silver).
If we also take into account the Gold/Silver ratio, we note that the ratio found strong support around the 200WMA and is now slightly above the 71.30 level (a 23.6% Fibonacci Level of the April 2011-February 2016 rising trend). Such a strong buying pressure should favor Gold over Silver as a long trade ahead of US Elections. In conclusion, the area around 1.200-1220 for Gold could be an interesting long entry zone, with a stop below 1.160 and first target 1.328 (the sloping down trendline started in September 2011)
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