As we enter the New Year amidst all of this economic and geopolitical turmoil, it’s time to reassess the yellow metal, its prospects for this year and the opportunities it offers us now.
Last year, gold began at around $1,320, extending a consolidation phase, one that lasted a long five years. However, if you really think about it. It has been dormant waiting for a market correction to soar. We are at that crossroad.
Gold declined in 2018. But in the larger scope of things, that decline didn’t amount to much. It certainly remained above its 2016 and 2017 lows. And anyone holding it since 2008 would still be well ahead.
It’s not that gold has been bad, it’s just that gold has been underwhelming and unexciting -- Yet remained as one of the best asset classes for capital preservation.
An asset’s sentiment factor is not a reliable stand-in for sound economic fundamentals. We know this, of course, and so do you.
But there is one thing about “unexciting” that does excite us, and this holds true for today’s economic environment: the winds can only remain calm for so long.
A similar thing happened in 1999. Gold reached a 30-year record low of $253 per ounce after a slow and calm decline. Then the wind began picking up, soon to become a hurricane.
What followed was one of the greatest gold bull markets in history: from $253 to $1,900 per ounce over the course of 11 years.
This eleven-year run saw gold rise by 650%. Investors who jumped in when gold was “boring” found their investments grow six times over. This can repeat itself again in today’s market conditions with 5 Financial Bubbles in the making.
Wealth multiplied and fortunes were made.
And while this was happening, hardly anyone noticed it until it was well underway.
As we began sounding the alarm as early as two years ago about the current market environment, the Fed, the trade war, and the irrational exuberance surrounding the markets, we now have another warning: gold is poised to hit record highs in 2019.
In 1999, there were several reasons why gold began rallying. You had the dot-com crash. A recession. The 911 attacks. The War on Terror. The emergence of gold buying by both Russia and China.
Now, as we enter 2019, it will be just a matter of a few years before we will look back and say that the $1,200 range was the last great entry point.
In retrospect, it will all make sense. That is, in retrospect. We will remember that despite the headwinds, gold remained resilient.
The Fed’s monetary tightening, since 2015, had made gold less attractive for sure (gold has no yield). But despite all of this, gold held its own.
We will remember how this told us something important about the underlying supply and demand of the physical market.
We will also remember how most investors missed this important piece of fundamental information.
One thing for certain is that Russia and China remain two of the biggest players who are putting a floor down on prices. And they are accomplishing this even as miners are struggling to expand output.
No matter who or what tries to manipulate gold prices, in the end, supply and demand get the final say in determining gold prices.
In other words, if gold was able to eke out a small gain in a period of monetary tightening, imagine how large a surge it will have when the Fed reverses course to avoid another crisis.
Right now, what are the economic and political conditions pointing toward another recession, or financial crisis?
The Fed is currently unwinding their balance sheet to the tune of $50 billion per month. They are feverishly unwinding in order to have enough ammo for the next crisis.
All emerging markets--Venezuela, Argentina, Indonesia, Turkey to name a few--all of them are in a meltdown.
China’s economic growth is slowing, its debt completely unsustainable.
In short, the set-up for another major financial crisis is already here.
And the set-up for another multi-year gold rally--one that may far exceed 2011 highs--is also already here.
We’re not saying that you should go “all in” with gold.
We’re just saying that you should hedge your portfolio with it in order to weather the coming storm.
Even a modest 10% will protect your purchasing power from the average inflation rate of 3% per year.
3% may not sound like much. But 3% means that if you need $50,000 now to cover your retirement, you’ll need upwards of $91,000 in 20 years. So it is a big deal, something that shouldn’t be underestimated.
A modest 25%--as in an “all-weather portfolio of 25% gold, 25% cash, 25% stocks, and 24% bonds--will give you ample upside during a bear market or recession.
Gold may be the best insurance you can buy, but that’s because it gives you much more than insurance.
Gold is “real money” that grows...against a market downturn, against a recessionary environment, and against the dollar’s slow and steady erosion.