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The recent weakness in stocks has correlated with strength in the US dollar and weakness in Gold. I see a similar setup in Gold, as I see in the S&P 500 – as I recently discussed – where a breakout to new highs has been followed by a pullback.

The chart above shows price action in Gold over the last 3 years. There has been 2 declines of 15% and 3 declines of 7%.

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I’m watching for support in the $1780 area, which would match the recent pattern of 15% declines, technical support, and the 200 day moving average isn’t much farther below.

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I use the iShares Gold Trust (IAU) to buy Gold and the $1780 level roughly equals $16.70 on IAU.

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The thing about Gold though is that its negatively correlated to the USD. And during times of crisis, there is an immediate demand for dollars. This can put downside pressure on Gold, and limit its hedging ability when you need it most.

The chart above shows some recent strength in the dollar, which hit its first potential resistance level at $94.60 yesterday. Next upside resistance level in the $95.70 area, and a break above there could take us to the $97-98 area.

Given negative real yields and the historic level of uncertainty as we head into Q4 & Q1 2021, hedging up stock positions with some Gold could be a viable solution. I currently have 5% in Gold and may take it up to 10% if the pullback is large enough. Remember, Gold has all the same risk characteristics of stocks despite what you hear and read. It’s fine in moderation, but if you are selling everything and putting all your money in Gold, please stop and find the nearest qualified advisor to help you with you financial plan.