As a traditional safe haven that has proven itself time and again, gold has always been that reliable fall-back currency that investors run to when the economy or monetary system goes awry.
After all, gold is money, and money is meant to be sound, not speculative.
But there are certain conditions under which gold prices rise with a trajectory that leaves other speculative assets in the dust.
Exploiting these golden nuggets of opportunity and reaping their financial rewards is a matter of panning through the economic noise that distorts the signal indicating that a rush may be forthcoming or imminent.
Well, here are 10 of them. And as it turns out, the time to double-up is now:
One - Domestic Political Uncertainties Will Drive Gold Regardless of the Outcome
The 2020 presidential election is just around the bend. Americans will have to make a choice: free-markets or bigger government. Bear in mind that during the Obama years gold rose 125%, reaching $1,800. If the Democrats win, chances are we may see a repeat. But if President Trump wins, gold may still rise. Remember his “abolish the Fed” chant? Perhaps his administration might not go to such an extreme, but one of his economic advisors, Judy Shelton, is pursuing a reintroduction of the gold standard, perhaps through issuing gold-backed Treasuries. Whichever way the wind blows will be a tailwind for gold.
Two - The Cost of Living is Getting Way Too High
We know it and you know it. The costs of goods and services are getting out of hand. The purchasing power of nearly every American is getting decimated, straining our capacity to provide basic items for the household. It doesn’t matter that the Fed’s inflation measure doesn’t take into account the rise in your food and energy costs. Your food and energy costs are rising. And if we haven’t reached 2% inflation by Fed measures, imagine the hardship you’ll encounter when we do. If there is anything that has reliably triggered a flight to gold and a rise in gold prices, inflation and purchasing power erosion are definitely it.
Three - Stock Market Valuations Are at Unsustainable Levels
Not only have debt-fueled corporate buybacks been artificially powering the euphoria that prompted the investing public to jump into the bull market late, not only have relatively decent earnings been distracting the American public from the more grave fact that our national debt is rapidly rising beyond the government’s capacity to pay it back, the fact remains that markets and economies are cyclical. We had a great run, a great party. The fundamentals just left the door. Euphoria decided to stay, not noticing that the host of reason and rationality had just put an end to the event. It’s just a matter of time before exuberance fades. And when it does, it’s often too late.
Four - Central Banks Across the Globe Are Buying Gold at Record Levels
Unlike most investors, central banks are counted on to remain fiscally responsible, forward-looking, calculated, and sober. They saw the end to this party years ago, when they began slowly accumulating gold reserves to hedge against heightened geopolitical uncertainty and, of course, the US dollar. In 2018, central banks purchased as much as 651 tons. This was the highest purchase on record since Nixon put an end to the gold standard back in 1971! Sadly, a large segment of the investing public see gold as a relic. But the majority of the world’s most powerful central banks beg to differ. Even our own Federal Reserve, who holds the largest gold reserves in the world. So when it comes to the debate as to whether gold is sound money or a mere relic, who would you rather trust--your fellow investors, or the world’s largest bankers?
Five - Large Investors and Institutions Are Buying Gold Ahead of the Crowd
The world’s most successful investors lead the crowd rather than follow it. There is no safety in numbers, not if you’re trying to achieve wealth in investing. This doesn’t necessarily require a contrarian outlook, it just requires one to invest according to fundamentals, not fads. And the fundamentals have been pointing toward one condition over the last few years: that gold supply is rapidly shrinking. This points to an upswing in gold prices. Astute investors know this and they’ve already begun loading up early. The average investor also knows this, be he or she waits for price to move as everyone else jumps in. There’s the boat, and there’s missing it.
Six - Recession is Imminent, Likely to Occur in 2020
The current 10-year economic expansion is on borrowed time. History has shown that every decade has been marked by at least one slowdown or recession. It’s a cycle, and strangely, people react to the possibility of a recession as if it were the plague. It isn’t, and when it’s done, the market will likely expand again. Among the last four recessions here in the US, three of them were kicked-off by unexpected shocks, or foreseeable shocks that the investing public just chose to ignore or deny. There’s a likelihood that such a kick-off will happen again. And gold has proven to be one of the best recession-proofing assets during times of recession and downturn.
Seven - The Fed Has No Ammo to Save the Economy in the Next Recession
You probably noticed that the Federal Reserve made a desperate attempt to normalize rates in 2018. You also probably noticed the effect it had on markets. The current Fed under Powell has taken a different approach toward reaching a neutral rate, a more accommodative or responsive stance. They understood that unless they can unload their balance sheet, they’d have no room to lower rates should another recession befall the economy. Well, that approach has changed. Perhaps the Fed became sensitive to market response. Or perhaps their inflation gauge, however flawed it may be, gave them reason for pause. Whatever the case may be, the Fed’s balance is still bulging, the cost of living is still rising, and when the next recession strikes, the Fed will have close to nothing to combat the very recession they played a strong hand in creating. With purchasing power declining and the threat of a major collapse in asset values, gold is one of the few safe haven assets that can weather the storm and achieve growth at the same time.
Eight - Global Tensions Are Growing
According to the World Economic Forum Global Risks Report, the current geopolitical environment is far more perilous now than it has been in decades. Nearly 90% of the experts identified economic confrontation and rising tension as the most urgent risks in 2019. Ian Bremmer of Eurasia Group stated the current state of geopolitical risk “hasn’t been in evidence since World War II.” Despite potential disputes between nations and the havoc, it can wreak among economies and currencies, gold would still be accepted as money across virtually all nations involved because it’s recognized as the safest and soundest monetary asset available. Hence, large-scale central bank purchases.
Nine - The US Dollar is Growing Weaker
The US dollar is the world’s reserve currency, its current status undisputed, its future prospects indisputably uncertain. The dollar is up against several factors that weigh heavily against it--several nations are beginning to de-dollarize, recessionary fears are increasing, US economic and manufacturing data is weak, and the Fed will likely not raise interest rates to the degree that it did last year. In short, the dollar is skating on thin ice. Toward the end of 2018, we saw gold prices rise despite dollar strength. With the dollar growing weakening, there’s very little to hold back gold’s continuing appreciation in value.
Ten - Gold is a Time-Tested Safe Haven
Over the last 5,000 years, there has been only one currency that remained standing as all other forms of money faded to obsolescence: gold. Gold has survived empires, besting the monetary iterations, variations, and substitutions that came and went with them. As J.P. Morgan once said, “Gold is money. Everything else is credit.” Central banks across the globe will attest to this. The US Federal Reserve might not. But again, they hold the largest gold reserves in the world.
So, how much gold should you own? It depends on your long-term goals. We suggest you contact us at GSI Exchange to develop a gold investment strategy that suits your financial situation and investment goals.