The performance of stock markets this year has been horrendous by just about all measures. And events of the past few days have brought to the fore the realization that the economy may very well be headed towards recession, if it isn’t in recession already.
Stock market indices performed horribly last Friday and started off this week on another slide. The outlook for the future doesn’t look particularly promising either, as the Federal Reserve will begin its much anticipated quantitative tightening at the beginning of June.
With such poor performance, and so much fear of the future, you would expect that gold would be shooting up in price as investors flock to the safety and security that gold can offer during times of crisis. But while retail gold demand has remained strong, the gold price has fallen right along with stock markets. How does that make any sense?
If you’re scratching your head wondering why gold is following financial assets southward, you’re not alone. Both gold owners and casual observers are wondering why gold hasn’t taken off right now. But there are perfectly good reasons for what gold is doing, and for why the long-term outlook for gold remains bullish.
Gold Doesn’t Always Go Up
The first thing to remember is that gold, just like every other asset, has its ups and downs. Gold may be less volatile than stock markets and not subject to the same booms and busts as stocks, but it still fluctuates in price over the course of the days, weeks, months, and years.
Gold even can go down in price when you otherwise would expect it to rise in price. Just look at the period from October 2007 to March 2009.
During that period, stock markets peaked in October 2007 and reached their lowest point in 2009, falling over 50%. Gold gained 25% over that same time period. But within 2008 there was a period of time in which gold had also fallen 30% from its highs, from $1,000 in March 2008 to under $700 by October 2008.
But gold recovered after that and went on to continue making gains while stock markets faltered, and it never looked back. That’s why it’s important to remember that just because the gold price may be going down when we expect it to go up doesn’t mean that something’s wrong with gold.
Gold is a long-term investment for most people, not a get rich quick scheme. Right now the gold price has been hurt by hedge funds selling their gold holdings to exit their investment positions. Perhaps they feel there’s a short-term case for shorting gold, or perhaps they have to drum up cash to cover other positions. Whatever the reason, that appears to be one of the primary factors causing gold to lose a bit of momentum recently.
But it’s okay for that to happen. It doesn’t mean that gold isn’t going to end the year at $2,100, or that demand for gold is going to plummet. Ordinary people have been buying gold for months and they’re not going to stop, especially now that the economy could be entering recession and stock markets are showing signs of weakness. If anything, this price retrenchment could be a good buying opportunity to buy the dip.
Gold as Part of a Long-Term Investment
The important thing to remember is that gold rises in value over the long term. If you own gold or if you’re looking to buy gold, you’re probably not looking to sell it again within the next year. Gold for you, like for many people, plays a part in diversifying your investment portfolio and protecting the long-term value of your assets.
If your time horizon for investing in gold is 2 years, 5 years, 10 years, or even longer, these short-term fluctuations in the gold price aren’t anything to worry about. What matters is the long-term growth of the gold price, which as it stands right now could be very good given the headwinds facing the economy today.
We have an economy that is teetering on the edge of recession, having contracted 1.4% in the first quarter of this year. We have inflation that is the highest it has been in 40 years, with prices seeming to rise just about every week. We have a job market in which more people than ever are quitting their jobs and employers are having a tougher and tougher time filling positions. And we have supply chains that are still completely discombobulated.
Even worse than what’s happening today are the prospects for the future. The Biden administration wants to keep raising taxes and spending money. The Federal Reserve doesn’t acknowledge its role in creating inflation and wants to slightly tighten its monetary policy, but probably won’t be able to do nearly enough to fix things.
The US economy in the 2020s is looking increasingly like the economy of the 1970s, and if this decade ends up being a repeat of what happened 50 years ago, we’re all in for a rough ride.
Back then, inflation peaked at around 11%. Stock markets saw a total of about 4% growth over the course of the decade. Rising prices and periodic shortages were the name of the game.
But gold was a bright spot, making average annualized gains of over 30% over the course of the decade, far surpassing both inflation and stock markets. If gold repeats that same kind of performance this decade, those who trusted the yellow metal to protect their assets will likely be able to give themselves a big pat on the back.
Buying Gold Today
If you don’t own gold already, now is the time to start thinking about it. Gold can diversify your portfolio, help reduce your risk profile, and protect your assets against loss during financial downturns. And best of all, you can buy gold using existing savings and investments.
A gold IRA allows you to use existing retirement assets from a 401(k), 403(b), TSP, IRA, or similar account to buy gold coins and bars tax-free through a rollover or transfer. Your gold IRA offers the same tax advantages as any other IRA account, allowing you to use pre-tax dollars to buy gold. Once you take a distribution, you can take that distribution either in cash or in gold, allowing you to continue owning gold even after the government requires you to take required minimum distributions (RMDs).
Opening a gold IRA can help you protect existing retirement assets you may already have. Or it can help you use funds that may be held in a previous employer’s retirement plan that are just languishing there. And if a gold IRA isn’t something you’re interested in, you always have the option to buy gold coins or bars using cash or cash-equivalent assets such as bank accounts, CDs, etc.
Don’t let short-term gyrations in the gold price discourage you from protecting your wealth with gold. If the economy falls into a crisis as bad as 2008 or even worse, not buying gold could end up being something you regret for years to come.
Call the precious metals experts at Goldco today to find out how you can start protecting your hard-earned savings with gold.