Owning gold is like owning some insurance in your investment portfolio. When times are uncertain, its price may go up while others are going down.
It has always made a great deal of sense to own gold, but now more than ever its price is rising.
Joe Wallace explains why gold’s price is soaring in The Wall Street Journal:
The main reason is this year’s precipitous drop in yields on U.S. Treasurys to levels below the expected pace of inflation. Unlike bonds or bank deposits, gold doesn’t pay any income. As a result, owning gold means missing out on yields from other assets when interest rates are high. When real yields are negative, gold’s lack of yield becomes a strength.
The Federal Reserve’s March decision to slash interest rates to just above zero and buy hundreds of billions of dollars of bonds has pulled down yields in fixed-income markets, prompting investors to buy gold instead. Some money managers expect inflation to pick up once the economic crunch is over, which would act as a further drag on real yields if nominal rates don’t rise.
Investors are also buying gold because they think it will hold its value if stocks take another tumble. Enthusiasts take this argument a step further, contending that gold is the ultimate insurance policy against a scenario in which the U.S. government defaults or kindles inflation to alleviate the burden of debt.
“Gold is a haven,” said Rhona O’Connell, head of market analysis for Europe, the Middle East, Africa and Asia at StoneX Group. “It doesn’t have anyone else’s political or financial risk associated with it.”
Another tailwind for gold right now is the depreciation in the dollar. Buyers outside the U.S. are willing to pay a higher dollar price when the greenback weakens, making gold cheaper in terms of their home currencies. This relationship doesn’t always hold: Gold and the dollar shot up in tandem in March during a period of turmoil in financial markets.
Gold makes sense as a counterbalancer in your investment portfolio.
For more on gold and protecting your investments, sign up for my monthly Survive & Thrive newsletter by clicking here.
E.J. Smith - Your Survival Guy
Latest posts by E.J. Smith - Your Survival Guy (see all)
- Your Survival Guy in Rome 30-Years A.B. (After Babson) - May 26, 2023
- Insurers Now Fleeing the Net Zero Insurance Alliance - May 26, 2023
- A Three-Week International Research Trip to Paris via Rome - May 25, 2023
- Will Biden Repeat Obama with US Debt Downgrade? - May 25, 2023
- What Does That Have to Do with Your Dividend? - May 24, 2023