Tags: Gold | Investments | market | metals

Why Gold Will Continue to Crush Other Investments

Why Gold Will Continue to Crush Other Investments
(Dollar Photo Club)

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Friday, 18 March 2016 06:32 AM Current | Bio | Archive


Gold prices moved higher in European markets on Monday, supporting a trend that’s been in place since the beginning of the year. It’s up nearly twenty percent so far in 2016 and there are good reasons to suspect the bull market is just beginning.

Just in this first quarter gold has outperformed the S&P 500, demonstrating why smart investors keep a percentage of their wealth in liquid hard assets and rebalance their portfolios regularly, adjusting the asset allocation as they near retirement.

Gold’s turned in a strong performance in spite of factors normally cited as headwinds for higher prices. Yields on bonds have been moving higher, employment numbers are healthy, equities are recovering and we’re still in a tightening monetary environment for the Fed. Looking ahead there are good reasons to believe this rally has steam in spite of the obstacles.

Let’s Face It – Central Banks Are Crazy

There really isn’t a more polite way to describe the behavior of central banks and the proof is in the headlines. Even though dumping money into the economy in the form of Quantitative Easing, or QE, is not achieving the desired results, the European Central Bank recently decided to boldly do even more of what’s not working and hope for a better result. Central banks discovered that when they dumped excess cash into the economy in the form of QE, the money wasn’t actually getting where it needed to be.  Instead it was just building up on bank balance sheets. To get that cash moving, central banks in Europe and Japan deployed the nuclear option in the form of negative interest rates. This is every bit as crazy as it sounds; central banks are charging customers who want to buy government bonds! Banks, pension funds and insurance pools responded by shifting to buying foreign treasury assets, causing massive capital outflows – not the result central banks were hoping for.

Chinese Investors Buying Gold Heavily

The crash of the Chinese stock market has spurred the government there to implement capital controls.  It’s an attempt to stop foreign capital exiting as citizens look to exchange their imperiled yuan for currency of higher value. But if foreign capital reserves fall far enough, it would trigger exactly the massive devaluation of the yuan everyone’s afraid of. Imagine all those investors who sold out during their stock market crash, and are now sitting on mountains of currency that might devalue at any moment. All that money had to go somewhere and Chinese investors, who know better than to trust their country’s currency, started buying gold fast.

Gold Funds are Buying Too

Exchange Traded Funds, or ETFs, track the price of gold.  They’ve bought up over seven billion dollars’ worth so far this year to back the paper they’re selling. While I don’t recommend “paper” gold, because those who buy it end up with far more paper than they ever see gold, such ETFs do throw a lot of weight around in the gold market.  These Gold ETFs are likely to continue buying gold for some time, as the companies that manage them got caught shorting their gold reserves, which they’re required to maintain at a fixed level.

Defensive Asset Allocation

None of this looks like it’s going to change anytime soon. China’s still struggling with the ongoing slowdown in the global economy, and central banks remain desperate to devalue their own currencies. For Americans in their forties and fifties, this is not the moment to gamble with your retirement savings.  You can take a more defensive position, minimizing your risk as well as your dependence on market-based investments, by increasing the percentage that’s in liquid hard assets like physical gold and silver.  It’s also a prudent and conservative strategy in an increasingly volatile world economy. This is especially crucial for your IRA/401(k), and clearly I’m not the only one who feels this way.  Many gold IRA companies, such as mine, Goldco Precious Metals, are getting swamped with calls from concerned soon-to-be retirees. 

Gold’s been the best-performing asset in your portfolio so far in 2016 and it appears there are more gains ahead. It’s also becoming clear we can no longer trust the institutions that manage our currency to behave in our best interests.

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. To read more of his work, Go Here Now.

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TrevorGerszt
Gold prices moved higher in European markets on Monday, supporting a trend that’s been in place since the beginning of the year. It’s up nearly twenty percent so far in 2016 and there are good reasons to suspect the bull market is just beginning.
Gold, Investments, market, metals
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2016-32-18
Friday, 18 March 2016 06:32 AM
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