Being Bullish Gold and Gold Miners

Being Bullish Gold and Gold Miners

$GLD, $XAU, $USD

Forbes.com recently published 3 reasons why savvy investors need to always own gold in their portfolios.

Essentially, you can never play it too safe when it comes to investing.

“Holding an overweight position of an unlevered asset with limited supply such as gold will offer one of the few safe havens for capital preservation,” Forbes.com explained.

“Gold’s biggest attraction is that it maintains or even appreciates in value consistently and acts as safe-haven during market risk-off periods. Because of gold’s perception, it is not evaluated in terms of dividend yields and cash flow distributions, but instead by analyzing quantifiable macro factors related to world growth prospects, liquidity (interest rates, USD), with an overlay analysis of the market environment,” Forbes explained.

The 3 reasons why gold is poised to beat bonds and other equities are as follows:

1. Longer-Term Growth Expectations

“Gold tends to perform well at the time of prolonged equity corrections driven by changes in the growth environment,” Forbes explained. “Over the very long-term, gold can benefit from wealth creation, especially in emerging markets, where allocation to gold as a percent of GDP remains low. The rise of disposable income has risen in emerging markets over the past several decades and has led to an increase in financial assets and gold being held by households.”

2. Investment Alternatives

“When the USD starts to lose value, investors look for alternative sources to store value, other fiat (paper) currencies and gold. One must acknowledge here that the reasons for the moves in the US dollar are often related to interest rate differentials. When US interest rates decline versus other currencies, carry in the alternative currencies becomes more attractive or if there are no better “safe” carry alternatives, investors flee to gold,” Forbes explained.

3. Political Uncertainty

“Rising political uncertainty and a deteriorating fiscal position in the US meaningfully revives the debate of the US Dollar as a reserve currency. This in turn, could drive further allocations to gold and alternative reserve currencies in Central Bank portfolios,” Forbes explained.

Investment guru Bert Dohmen also recently predicted that gold will continue to soar in price for the next decade.

“Gold and silver are not hedges against a crisis. In fact, a crisis may cause all salable assets, including precious metals, to be sold in order to get cash,” Mr. Dohmen wrote for Forbes.com.

“Gold investors must realize this to protect themselves in times of crisis. Cash in the form of a stable currency is the most desirable asset to hold during such times,” he wrote

The Big Q: What is bullish for gold?

The Big A: Gold is primarily an inflation hedge, actual inflation or the perception of future inflation, as currencies are debased by governments that can’t pay their bills.

“With long-term Bullish sentiment on the precious metals so low until late 2018, and the gold price in terms of many foreign currencies already near or at new record highs, it’s only a matter of time before the U.S. dollar price of gold shoots upward,” Mr. Dohmen wrote.

We advise adding gold to any portfolio, including gold mining stock as the risk characteristics improve.

There’s been a big shift in the Fed’s thinking in the last couple of months.

There is now this discussion on Modern Monetary Theory and how deficits do not matter. Gold likes those kinds of discussions. Plus, central banks are buying it for the 1st time in a while.

There are also not a lot of gold discoveries out there, and the existing ones are in unhappy places that are hard to get to. The fundamentals of gold are lining up good in here. But people are being very conservative about their gold forecasts, after being burned pretty badly the last time around.

We are Bullish, if you are going to own gold, manage the risk this time around.

Have a terrific weekend.

The following two tabs change content below.

Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

You must be logged in to post comments :  
CONNECT WITH