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Schaeffer's Research Mines Gold

There have been changes to Schaeffer's Master Portfolio; we have added to new long positions in gold related holdings, explains Bernie Schaeffer, trading expert and editor of Schaeffer's Investment Research.

I initiated a long position in SPDR Gold Shares (GLD) by purchasing 600 shares. Shares of the gold ETF have been strong, adding about 6% year-to-date amid broad-market weakness.

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GLD recently broke out to fresh seven-year highs and has since pulled back, offering a nice entry on a long position. Prior to the recent market swoon, sentiment toward gold was very bullish. However, the large selloff in virtually all risk assets forced investors to capitulate.

This can be seen in the Commitment of Traders Report for gold futures, where total positions on gold are at levels not seen in nearly a year. This recent unwinding of bullish bets creates the potential that these investors will re-enter their longs, which could act as a tailwind for gold moving forward.

From a macro perspective, gold has many things currently working in its favor. The Federal Reserve has launched multiple stimulus programs as a result of COVID-19, and this could have a negative effect on the dollar, and conversely be bullish for gold.

Additionally, should these periods of low interest rates persist, the potential exists for future inflation. Gold historically has performed well during periods of high inflation.

I also initiated a long position in NovaGold Resources, Inc. (NG) by purchasing 10,000 shares. Price action on NG has been very strong, with the equity more than doubling over the course of the past year.

The shares recently pulled back to their 200-day moving average and bounced sharply off of it, signaling potential support moving forward. NG is currently sitting just below fresh ten-year highs made earlier this year. Continued strength could be expected.

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Despite its strong price action amid a solid fundamental backdrop for miners, sentiment remains skeptical. Currently, only one analyst covers NG. This creates the potential for future initiations, which could spur interest for new buying.

Lastly, short interest has been plummeting, yet the current short interest ratio still sits at over 5. Should NG continue its ascent, this pent-up buying could act as a catalyst to drive it even higher.

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