Americans head to the polls to vote in the midterm elections Tuesday, with Democrats expected to win the House of Representatives while Republicans are predicted to remain in control of the Senate. Many commentators believe that the midterm elections are effectively a referendum on President Donald Trump, whose two years in office have shown how politically divided the nation has become.
Making and passing policy is likely to become increasingly difficult if there's a split Congress. A political stalemate and uncertainty over controversial policies such as additional fiscal stimulus – like further tax cuts – could lead to a "risk-off" market environment. These conditions may bolster the demand for safer assets like precious metals as investors seek a protective hedge.
Investors and traders who want to position themselves for "risk-off" market conditions should explore these three precious metal exchange-traded funds (ETFs). Let's take a closer look at each fund and locate suitable entry points.
Launched in 2010, the Aberdeen Standard Physical Platinum Shares ETF seeks to track the platinum spot price using platinum bullion held in London and Zurich. The fund suits investors who want a cost-effective way to gain platinum exposure with minimal credit risk. As of Nov. 6, 2018, PPLT has a year-to-date (YTD) return of -9.19%, but the fund has returned roughly 3% over the past month. PPLT charges a 0.6% management fee – double the category average.
The fund has spent the majority of 2018 trending lower. Between July and October, the ETF's chart has formed an inverse head and shoulders (H&S) pattern, which suggests that a significant bottom is in place. In early November, PPLT's price broke above a downtrend line dating back to late February in another sign that the bulls are taking control. Those who wish to buy should look for retracements to the $80 level, where the price should find support from the downtrend line and neckline of the H&S pattern.
The Aberdeen Standard Physical Palladium Shares ETF, also created in 2010, aims to track the performance of the palladium spot price using palladium bullion stored in London and Zurich. The fund has an average daily trading volume (ADTV) of $1.4 million and a 0.17% average daily spread, making the instrument suitable for both swing traders and investors. PALL has an expense ratio of 0.6% – the same as PPLT. The ETF has returned 15.5% over the past three months and 1.01% YTD as of Nov. 6, 2018.
PALL traded within a descending channel between December 2017 and August 2018 before breaking to the upside and reaching a YTD high of $108.79 on Oct. 23. Consider buying the fund between $102 and $104 – this area on the chart finds horizontal line support from January and October price action. The 50-day simple moving average (SMA) has also recently crossed above the 200-day SMA, confirming upward momentum.
Formed back in 2007, the Invesco DB Precious Metals ETF aims to provide similar returns to the DBIQ Optimum Yield Precious Metals Index. The fund's tracked index represents the value of various gold and silver futures contracts. It allocates 80% of its portfolio to gold and 20% to silver. The ETF's managers select contracts that are close to the spot price to minimize contango. DBP has returned 1.1% over the past month while returning -9.51% YTD as of Nov. 6, 2018. With a 0.75% management fee, the ETF is the most expensive fund of the three discussed. However, a dividend yield of 0.13% helps to partially offset costs.
The fund's chart has formed a double bottom over a three-month period between August and October. Despite several pullbacks throughout last month, DBP's price has managed to remain above the 50-day SMA. Investors should look to enter this market at the $35 level, where the price should find support from the double bottom pattern's neckline and the 50-day SMA.