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Stock Market Volatility Highlights the Importance of Gold

Stock Market Volatility Highlights the Importance of Gold

Thursday, 08 February 2018 02:38 PM Current | Bio | Archive

The stock market declines of the past two weeks have shaken investors who have seen two years of steadily increasing stock prices. Some optimistic prognosticators in recent months began to sound like throwbacks from the late 1990s, predicting Dow 36,000. But in reality, 26,000 may have been the last Dow milestone for a while. While stock markets bounced back the day after their biggest loss, they have since continued to slide. There’s now much more uncertainty in investors’ minds as to whether markets will continue their magical runs.

What Goes Up Must Come Down

Stock market prices have seen an amazing run over the past two years. The Dow Jones, which in February 2016 was under 16,000 points, has been on a steady rise ever since, setting record after record. It hit 20,000 points for the first time ever in January 2017, broke 22,000 in September, 23,000 in October, 24,000 in November, and both 25,000 and 26,000 in January of this year. It’s only natural, then, that there would be a pullback and profit-taking after such an acceleration. But that has introduced an element of doubt in investors’ minds about how much further the Dow’s run might last.

The day after the Dow’s 1200-point drop, it rebounded by posting its 4th-highest one-day point gain. It seems that a lot of investors bought the dip. But trading since then has been incredibly volatile. That volatility brings back painful reminders of October 2008, when the Dow saw some of its biggest one-day gains and losses, swinging back and forth by hundreds of points just about every day. If this current volatility persists, particularly to the downside, market pessimism risks becoming contagious and we could see a major sell-off.

Many investors are undoubtedly poring over charts of previous stock market meltdowns to make sense of what is going on. It’s very difficult to assess when a market has topped, and when it might begin to crash. The first inklings of the financial crisis occurred during the summer of 2007 when Bear Stearns began to experience some difficulties, yet stock markets continued to rise until October 2007, with the Dow peaking at over 14,000 points.

Even after that top, the downturn happened relatively slowly over the next year, with the Dow still at 13,000 points in May 2008. A slide over the summer got worse, accelerated in August, and continued until things bottomed out in March 2009 at around 6600 points. By that point the Dow was down over 54% from its peak, the NASDAQ nearly 55%, and the S&P 500 nearly 57%. That was the lowest point stock markets had been since the late 1990s, meaning that over a decade’s worth of investor gains had been completely wiped off the books. That’s why investors are in a panic over the Dow’s recent losses and wondering what they can do to prevent their assets from being decimated.

Gold Offers Protection to Investors

Investors who understand the need to diversify their portfolios know the ability of gold not only to diversify an investment portfolio but also to protect assets from declines in the stock market. Gold often moves in the opposite direction as stocks, gaining value as stocks lose value. Gold gained 13% last year, not as much as stocks, but it has continued to gain value this year even as stocks continue to fall. The forecast for the year is for gold to continue to rise, perhaps as much as 10-15%, while the outlook for stocks becomes increasingly uncertain.

At the time of the last stock market peak in 2007, gold was worth around $735. By the time markets had seen their 50% drop, gold’s price had increased to almost $940, a gain of over 25%. Investors who had protected their assets by investing in gold would have seen far lower losses to their portfolios than had they stayed exclusively in stocks.

But gold wasn’t done yet. It eventually more than doubled in price from that point in 2009 and, while it has since retrenched, it is is still over 80% higher than where it was in 2007. It has outperformed stock markets over that period and, now that a stock market correction appears to be in the cards, investors who protect their assets by switching to gold can help mitigate further losses.

Too many investors failed to invest in gold while stock markets were booming, thinking that the bull run would never end. Now that the end may be upon us, they’re probably hoping that it isn’t too late. It isn’t, thankfully. And with a gold IRA, investing is as easy as rolling over existing assets from a 401(k), IRA, or similar retirement account. So if you’re checking the Dow’s slide every five minutes, worried that your retirement savings are going to get wiped out, now might be the time to finally get serious about protecting your portfolio with gold.

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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The stock market declines of the past two weeks have shaken investors who have seen two years of steadily increasing stock prices. Some optimistic prognosticators in recent months began to sound like throwbacks from the late 1990s, predicting Dow 36,000. But in reality,...
gold, precious metals
Thursday, 08 February 2018 02:38 PM
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