Why IS Gold Moving Upward As Stocks Continue to Fly High?
Posted By | January 19, 2018
“Gold is a hedge against economic and geopolitical turmoil.” “Gold is good for when the stock market crashes.” These are the kinds of ideas about gold that largely inform the views of typical investors about the yellow precious metal.
However, the astute gold investor is capable of taking a more expansive view of the role gold can play in a portfolio and thus is better at recognizing when it’s a good time to buy gold – or more gold – for one’s portfolio. And those “good times” can even include stretches when equities are actually rising for a prolonged period.
Take the state of the financial markets, presently. While investors currently find themselves in the midst of what is now the second-longest bull market in history – and there is much talk that we are overdue for a meaningful correction (at a minimum) – the fact is that the markets continue to motor along quite nicely. And yet, in spite of this decidedly positive movement, gold is also doing quite well.
Last year, while the Dow Jones Industrial Average continued on its near-historic run, gold prices improved by 12 ½ percent. This year, gold is expected to build on those returns and do at least as well as it did in 2017. At this writing, gold is already up just over 2 percent in the first two weeks of 2018, as the Dow also continues to climb.
Gold and stocks both punching out double-digit annualized returns at the same time? What’s going on here?
My take is that gold is benefitting from a sort of “preparation phase,” as aware investors continue to acknowledge the increased likelihood of a market correction and general economic slowdown. In other words, while equities continue to rise, investors are buying gold in anticipation of what is seen to be the inevitable – and sizable – pullback. The longer the market goes without a correction…and the higher interest rates are pushed by the Federal Reserve…the more convinced many investors are the end is getting closer and gold will be the place to be when the party comes to an end.
Writing on behalf of a similar opinion, Mark Grywacheski, a former professional trader, says in an article for the Quad-City Times that the move to gold while markets are soaring “suggests an underlying anxiety on the sustainability of stock market gains and the continued health of the U.S. economy.” Grywacheski says that “despite an exceptionally strong labor market and a growing U.S. economy, skeptics point to the historical record of economic performance following a cycle of interest rate hikes” and notes that “of the 19 interest rate hike cycles dating back to 1914, 16 have ended with the U.S. economy in a recession.”
In other words, investors are getting ready for things to go south even as they continue to fly north, which presents a somewhat unusual condition in which both stocks and gold are moving up nicely for the time being.
The lesson is that gold is not limited to doing well only when geopolitical stability suddenly appears threatened, or at the precise moment when markets are falling and recessionary conditions are in play. Gold can be profitable in other phases of the economic cycle, as well, including during what might be considered the long period of a “run-up” to anticipated trouble.
If you would like to learn more about the favorable climate that exists right now for buying gold or gold IRA rollover, I encourage you to call Augusta Precious Metals today at 855-242-4121 to speak with one of our experienced, knowledgeable team members.
Recent gold price action indicates one of many opportunities that frequently become available in the precious metals market, but the ability to effectively capitalize on this opportunity depends in no small way on knowing how to properly identify and prepare oneself for what’s to come.
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