When financial markets are doing well, gold is generally stable, but it is always when the markets start falling that gold provides the significant refuge that investors seek. This is the lesson learned by Dennis Davit, as discussed in a recent CNBC post.[1] Like many others, this young investor has been shown the value of holding gold in a diversified portfolio, especially considering the tumultuous start to 2016 for major world economies.
From Foe to Friend for One Investor
Davitt is like many younger traders and investors who have never experienced real market turmoil and those who have read philosophical objections to gold. He states during a recent CNBC broadcast, “One of the assets that I never liked for my whole trading career was gold. But now … if you have to pay money to store your assets somewhere, I’d rather store a hard asset like gold than something like paper currency.”
Like many who invest in gold, Davitt now realizes how effective a hedge the precious metal often proves to be. For example, gold prices have already risen more than 12 percent during 2016, and many new gold investors are finding the peace of mind they have lost over paper currencies. Davitt forcefully underlines this point by adding, “If you’re worried about your equity portfolio going lower, you buy gold as a hedge. If you did that January 1st this year, it’s worked wonderfully.”
Economy Facing Serious Challenges
Much of the market was distracted in Q4 2015 over the question of such factors as jobs reports and Fed actions. However, the way the equities markets have opened in 2016 provide a perspective of gold as an investment that stands apart from such changing issues.
Along with a historic decline for the first quarter,[2] worldwide reports are increasingly focused on the growing problems of all paper currencies. These threats include:[3]
- Ongoing deficit spending and mounting debts of most major countries
- Fears of a looming recession in Europe and other parts of the globe
- Evidence of the Chinese economy approaching a very hard landing and decline
- Efforts to dislodge the U.S. dollar as the world’s major reserve currency
- Oil prices that continue to drift lower
- Movements by many central banks to leverage their current reserves with increased holdings of gold
These and other indicators are driving many to buy gold and increase their current holdings, at both institutional and private levels. The prospect of another major recession, even worse than that of 2008, has renewed discussion of gold as a must-have for every balanced portfolio.
Smart Returns on Gold for Investors
In addition to such converts as Davitt, many long-term gold investors are smiling over the fact that gold is the only asset producing a solid return in the current markets. At $1,127 an ounce, the gold in some portfolios is the only thing that has prevented even greater losses.
Those who are smiling expect to do so for some time, pointing out that gold is least affected by the potential of a global slowdown and there seems to be little indication of significant central bank increases over the coming months.
Strong Predictions for Gold in 2016
In fact, a number of analysts, such as Capital Economics, MarketWatch, and Merk investments all see more room for increases in gold values this year, from a minimum of 10 percent to as much as an additional 30 percent.[4] The more traders who come to see gold as the refuge it has been for centuries, the more likely these increases will be.
Additional Sources:
[1] http://www.cnbc.com/2016/02/10/ive-never-liked-gold-but-i-do-now-trader.html
[2] http://www.cnbc.com/2016/01/08/us-markets.html
[3] http://www.cnbc.com/2016/01/21/world-economy-teetering-on-edge-of-recession-citis-buiter.html
[4] http://money.cnn.com/2016/02/02/investing/gold-prices-rise-2016/