Last week I went on Bloomberg and was asked specifically my view on where we were in the market. I didn’t hesitate in saying I saw more downside coming and the worst was not over. A few hours later the video and web page was titled “US Market Pullback Isn’t Done”

I chuckled a bit a the title but was glad to see they took my opinion and ran with it. You can watch the full video HERE.

Now that we’re in the eye of the storm the  question is, is my opinion the same? Now that we’re seeing weakness, do I still feel this will result in an opportunity rather than a warning? The answer is yes however I feel these opportunities will not be in the traditional places we’ve seen of late but new areas more geared towards the primary theme I’m seeing coming at us like a freight train, inflation. In the next coming days I’ll be looking at specific areas of interest and specific investments to help build a shopping list.

Let us first start with Gold. This has to be my favorite investment theme at the moment for a variety of reasons. First off, I feel good about owning what has recently been a counter trending asset. For example, as I write this piece Gold is trading higher by 1% with the equity markets trading lower. Gold is traditionally an inflation hedge and whether you are talking about trade wars, tariffs, infrastructure plans or global growth, the variable all of these headlines have in common is inflation. General Mills (GIS) was recently taken to the woodshed not just because of their poor earnings report but rather their very poignant view on the input costs they’re struggling to control, i.e. inflation. Make no mistake, those input costs will be passed along to us, the consumer.

While the economics support the argument, the price action in the precious metal is also the most attractive it has been in more than 6 years.

The casual observer may not find anything to write home about with the price action in Gold as noted by the ETF: GLD shown above. The commodity has been trading in the same range as it has been since it’s dramatic drop in 2013. On multiple occasions this asset has reverted back to the 126 level, so what makes this different this time? Well, to understand that, one has to look into the chart a bit deeper to see the moving averages which have been slowly turning up and in proper alignment for a bullish move. Note how the 10 month is above the 20 month which is above the 50 month. This is what you want to see for sustained momentum. The odds favor this pattern has a much better opportunity for a breakout and it is why I am long this asset class in anticipation of this break.

As with any investment, knowing where you’re wrong is key, thus knowing where you’d exit if in fact the price action turned. The price in GLD where my thesis would be proven incorrect is a move below $117.00. Anyone looking to take a position in this area must respect that level as a key stopping point.

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At the time of this writing clients and the author were long GLD