Goldman Sachs has just released a new report saying they expect gold to outperform in 2018.
Why? Rising inflation plus a looming stock market correction.
“Our commodities team believes that the dislocation between gold prices and U.S. rates is here to stay,” says Goldman.
On Monday, the same day the Goldman report was issued, gold prices closed at a five week high – the precious metal’s longest streak of gains since January.
Gold rose almost 3% last week as saber-rattling by the U.S. and China sent investors running for safe haven assets. The stock market had one of its worst weeks ever.
The Federal Reserve just gave America a quarter-point interest rate hike, which leaves the new benchmark funds rate at 1.75 percent. The Fed’s opinion is that our economy is starting to run a little too hot. With new Chairman Jerome Powell at the helm for the first time, rate hikes are a virtual certainty in 2018.
The ravaging effects of inflation are the primary reason for this policy change, and inflation busting is what physical gold does best.
“Based on empirical data for the past six tightening cycles, gold has outperformed post-rate hikes four times,” and the investment bank sees more interest rate hikes ahead.
Inflation eats away at purchasing power, makes it harder for companies to operate, destroys the dollar value of retirement portfolios, and hurts the U.S. dollar.
Since gold is a safe-haven asset, it tends to move up as inflation rises and the dollar falls.
Goldman Sachs said its commodities team has become bullish on gold for the first time in more than five years “based on higher inflation, rising [emerging market] wealth and concerns about an equity correction.”
If you are still over-exposed to the stock market, gold is something to consider seriously. Now.
A PLUNGING STOCK MARKET SENDS INVESTORS TO GOLD
The Dow Jones Industrial Average plummeted last week as investors grappled with a potential trade war between the U.S. and China.
The proposed “Trump tariffs” have a 30-day consultation period, leaving room for compromise, but investors are concerned that trade war could break out quickly with dire consequences for global growth.
Commerzbank analysts write that “a looming trade dispute has caused stock markets worldwide to fall, bond yields to decline and the U.S. dollar to weaken – all of those being factors that are positive for gold.”
Former Bank of England policymaker Paul Fisher warns that America’s current “economic madness” could push the U.S. into a sharp recession that risks dragging the rest of the world with it. According to Fisher, slashing taxes and raising spending will cause America’s strengthening economy to overheat dramatically.
Head of commodity strategy Ole Hansen says gold is attractive right now because of higher inflation pressures and poisonous trade policies, a weaker U.S. dollar and lower bond yields.
Excessive stimulus could push up inflation to painful and potentially uncontrollable levels, forcing the Federal Reserve to hike rates too quickly, ultimately killing our nation’s growth.
GOLD: RESILIENT WHEN STOCKS ARE NOT
If you need reasons to consider adding gold to your retirement portfolio, there could hardly be a better time to take action:
1.A declining U.S. dollar
2. Rising inflation
3. Increased stock market risk and volatility
4. Chaotic national policy in the U.S.A., including a trade war
5. A ballooning national debt
Quantitative Commodity Research analyst Peter Fertig says risk aversion is currently the name of the game in financial markets.
Investors are looking for safe havens. Are you?
Fear has replaced greed as the dominant market emotion. But it doesn’t have to be that way for you and your family.
Don’t let fear OR greed guide your actions: use common sense.
Gold has been a time-valued safe haven asset for thousands of years, which is why sensible investors tend to keep it around.
And gold offers a hedge against inflation, broader diversification benefits and a level of peace of mind very few assets can offer.
Gold is up more than 3% in 2018 and has held its own in recent market corrections. Bitcoin is down 30% for the year!
Volatility has returned to stocks and it may be prudent to rebalance your portfolio’s asset mix before the next recession hits.
Are you prepared?