As anyone who’s turned on the news recently knows, the past few weeks have been somewhat tumultuous. Political turmoil lurks around every corner, and there may be several international scandals brewing. This constant uncertainty may be stressful and even a little frightening, but at least one good thing has come out of it: the price of gold is soaring.
The Rise of Gold
After showing a lot of promise for growth last year, gold seemed to disappoint a number of experts coming into 2017. It saw a steady decline over the last two months of 2016, and some even predicted that it would drop below $1,000 an ounce before the year was through. Others were more generous, saying that it would likely hold steady at around $1,125 for the foreseeable future.
Instead, however, gold has gone up over $100 an ounce over the last few months. And May in particular has seen significant gains for the precious metal. Last week, it went up $10 an ounce overnight—a gain of 0.8%—and has continued to rise further since then, currently sitting at over $1,255 an ounce.
This sudden rally of gold may have surprised the experts who predicted its demise, but for those who truly understand gold and its relation to the economy and the world, it’s not at all unexpected.
Relying on Gold in Times of Uncertainty
The markets are fickle things, and can be incredibly volatile, especially in response to outside stimuli. All sorts of factors can impact the direction of the DOW or NASDAQ, often before they impact anything else. The markets tend to dip significantly whenever a federal interest rate hike is announced, well before that hike has had a chance to have any actual economic impact. The announcement of Brexit last year not only caused the value of the pound and the euro to go down significantly, but the U.S.-based Dow dropped over 600 points as well, despite the fact that the actual process of leaving the EU wouldn’t even begin until months later. The slightest hint of turmoil on the world stage is enough to bring the economy to its knees
This is what’s happening right now. Concerns about the FBI and about Russia have caused the U.S. dollar to sink to a 6-month low. The Dow also took a significant hit, dropping from nearly 21,000 points on May 16th to 20,604 the next day.
When this type of volatility occurs, investors tend to turn to gold. Gold isn’t subject to the same volatility as the stock markets. Even when it goes through a rough patch, like it did at the end of last year, it still generally trends upward over time. Also, as a physical commodity, gold isn’t subject to inflation, retaining its value even as the dollar itself falls.
This is what makes gold an excellent safe haven to protect your nest egg, especially when world events are causing problems in the economy. As stocks go down, gold tends to go up. Therefore, even if there’s a market crash and you lose your investment, you still have gold to fall back on. And even as the dollar loses value and inflation rises, gold will still have the same buying power.
Smart investors know about the effect politics and other current events can have on the economy. Therefore, whenever troubled times arise, you’ll see a rally towards gold, sometimes even before the effects are felt in the stock market. It’s the one sure thing in a world of uncertainty.
Of course, the really smart investors don’t wait for troubled times. They put a chunk of their savings into gold and leave it there—often adding to it over time. A rally in gold makes it more expensive, and while it will still increase further in value over the years, it’s better to buy it when it’s lower, in anticipation of rallies to come.
There will always be political turmoil and market volatility. Even when things seem calm, they can’t stay that way forever. Therefore, rather than reacting to sudden drops in the market, it’s best to anticipate them. By putting a portion of your savings in a Gold IRA now and leaving it there, you’ll be prepared the next time a political scandal or other shocking news story shakes up the markets.
Trevor Gerszt is America's Gold IRA Expert, CEO of Goldco Precious Metals, and holds a position on the Los Angeles board of the Better Business Bureau.
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