With an overpriced stock market looming large over our heads, trade disputes escalating with China, bond yields and real cash rates low around the world, retirement investors are looking seriously for alternative options.
According to Jordan Eliseo, precious metals analyst, these investors will be diversifying their portfolios with safe haven assets like gold. And he’s not alone.
“[Gold] merits consideration simply because it behaves differently in times of crisis. It is a unique asset class that adds diversification benefits,” says RBC Capital Markets commodity strategist Christopher Louney.
Traditionally, gold has been a tool for safe guarding IRAs and other retirement portfolios. It can provide a physical asset, privacy and a price that tends to move independently of other traditional asset classes.
The combination of greater diversification and possible price appreciation is a powerful attraction at a time when the markets are getting increasingly scary by the day.
A BEAR MARKET FOR STOCKS AHEAD?
John Hathaway, chairman of Tocqueville Management Corp, says “equities stand at the cusp of a bear market that could last three to five years.”
For Hathaway, America‘s astounding debt levels are a big part of the problem. “The magnitude of the debt relative to GDP – the productive resources of the U.S. economy – now stands at a level at which there is significant risk,” writes Hathaway.
“A bear market of even lesser magnitude will, we believe, cause investors to turn to gold… to offset poor performance generated by mainstream strategies.”
ELISEO: DIVERSIFICATION DEMAND RISING ACROSS GLOBE
This theme of “turning to gold” in times of crisis is a familiar one for investors who have seen more than one market cycle. What goes up, must come down… or at least can go up and down more rapidly than your stomach can take!
That’s why diversification demand tends to rise for gold in times like these with elevated stock market volatility and looming bear markets.
“Gold could very easily head to $1,400-$1,450 an ounce by the end of the year… around 10% from here,” Eliseo said. “We will see people incrementally adding to gold for diversification purposes. Right now investors are incredibly underexposed to gold.”
This is true both in the U.S. and overseas, says the analyst. “Gold is… providing a far more stable savings asset for people than their national currencies and therefore it will continue to be the favorite among consumers in China, India and the Middle East,” he said.
CENTRAL BANK DEMAND STRONG FOR GOLD
It isn’t just individual investors who are finding gold an attractive option: central banks are as well. According to Eliseo, central banks will continue to support demand for gold in 2019 as emerging markets countries diversify their foreign exchange reserves, Eliseo added.
“In 2018, central banks picked up the better part of 500 tonnes of gold. I expect they will do that again this year. That will provide support for prices,” Eliseo said.
This trend is not changing any time soon, he noted. “There is no reason to think they will want less gold this year than they did last year,” Eliseo said.
CHINA TRADE WAR: NO END IN SIGHT
The prolonged and escalating trade battle with China has already created serious adverse economic ripple effects across the globe.
The fight is a tough one for the individual to understand because it is so complicated and politically charged. However, it has serious implications for our immediate economic future and could be create lots of unexpected effects on stocks for years to come.
Unfortunately, Eliseo does not believe the U.S.-China trade war will be resolved in 2019, and might even worsen.
“You can already see China starting to slow down and there are knock-on effects in Europe. Latest economic figures out of Germany were disastrous. Investors will need to hedge against negative outcomes from that for some time to come,” he said.
Eliseo thinks gold could rally if the U.S.-China trade war escalates.
U.S. FEDERAL RESERVE: TAKING A BREATHER?
In 2018, all the market actions and press conference comments from the Federal Reserve were important factors in the movement of the U.S. dollar and for gold prices.
Now the Fed has signaled its intent to postpone or forego any future rate increases in 2019. This creates conditions in which gold has traditionally shone, according to Eliseo.
“The market has now priced out expectations of any further rate hikes. Even if the Fed was to hike once or twice, it wouldn’t really hurt gold too much. And with volatility now back in play in the equity markets, we are going to see enough demand to push prices higher,” Eliseo said.
The analyst believes gold is gathering upward price momentum right below a key psychological resistance level. Eliseo explained: “The momentum is definitely to the upside now, which is good for precious metals investors.”
“In our opinion, equities stand at the cusp of a bear market that could last three to five years,” says Hathaway. “A bear market of even lesser magnitude will, we believe, cause investors to turn to gold and other strategies to offset poor performance.”
“Gold exposure, in our view, is the antidote to unknown adverse repercussions stemming from a sovereign-debt crisis,” said Hathaway. “Gold has always protected capital from currency debasement. We believe it will prove to be a winning strategy in a bear market.”
PROFESSIONAL INVESTORS WEIGH IN ON GOLD
News updates about gold are on the rise as investors seek alternatives. Here’s some recent comments from Commerzbank, TD Securities and others in the news.
Gold is benefiting from “heightened fear levels” amid global growth concerns, says TD Securities, which sees the precious metal enjoying strong price support at current levels.
Lukman Otunuga, FXTM research analyst, says gold has a bright future. “Taking a look at the technical picture, gold remains firmly bullish on the daily charts. A solid breakout and daily close above the psychological $1,300 level is seen opening a clean path towards $1,308 and $1,324,” he says.
Gold prices remain in striking distance of $1,300, finding some safe-haven support as Brexit uncertainty continues to loom over financial markets, says commodity analysts at Commerzbank. “At present, it looks as if the House of Commons will reject the deal with a relatively clear majority. Gold should remain in demand as a safe haven given that it is not clear what would then happen next,” Commerzbank says.
TRUST YOUR INSTINCTS: GET THE FACTS TODAY
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Don’t spend another sleepless night thinking about your portfolio and your family’s future.
To be clear, we don’t advocate market timing. That is why having the right information can be helpful whether or now analysts believe a bear market is looming.
Smoothing out bumps of volatility is something desirable in both up and down markets.
So, regardless of your opinion on today’s markets, we highly suggest you consider gold and silver for your IRA. A gold bullion backed IRA is of considerable comfort to me and my family at a time when a single tweet can hit the markets like Muhammad Ali.
Let us help you explore your options today, before it is too late.