Gold Survives as Stocks, Bonds, and Cryptocurrencies Collapse

In the face of market volatility, gold has once again proven to be a safe haven investment. Even while gold prices have fallen somewhat this year, they have outperformed other key asset groups such as stocks, bonds, and cryptocurrencies, which have all suffered significant losses.

It should serve as a reminder to cautious investors to consider devoting some of their portfolio to gold.

In difficult times, defensive asset classes like gold and other inflation hedges tend to hold up better on a relative basis, says Sam Stovall, chief investment analyst at research firm CFRA. “They don’t go up, but they lose less on the way down.”

Recent evidence shows as much. In the year through June 14, the SPDR Gold +1.12% exchange-traded fund, which holds bars of solid bullion, lost 1.4%, according to data from Morningstar . Now, compare gold’s modest fall to the Invesco QQQ Trust –4.03%, which tracks the tech-heavy Nasdaq-100 index and is off 31%, and to the SPDR S&P 500SPY –3.32%, which follows the S&P 500 index, down 21%, over the same period. Returns include dividends.

The performance of fixed-income securities was also dismal. Over the past 512 months, the iShares iBoxx $ Investment Grade Corporate BondLQD +0.11% ETF, which carries a basket of high-quality bonds, has lost 18 %of its value.

The biggest surprise, especially for cryptocurrency enthusiasts, is that Bitcoin, the original cryptocurrency, has lost more than half of its value this year. That contradicts the conventional narrative of recent years, which held that digital assets will take the place of gold as a safe haven in tumultuous times. At least this time, it should be evident that the reverse is true.

Stovall says:

“To me, cryptos are the epitome of speculation because there’s no way to value them. I think crypto today is what dot-com was in the 1990s.”

The late-90s dot-com boom ended as investors realized that revenue-free enterprises were unlikely to continue to be viable investments.

While cryptocurrency has failed its recent test, gold has not. Even better, it is not too late for investors to become involved. You should, however, proceed with caution.

“I think there is still some downside for gold,” says Rohit Savant, vice president of research at commodities consulting firm CPM Group.

According to Bloomberg data, one troy ounce of gold recently sold for around $1,847. According to Savant, an excellent entry point would be when it declines another $40 to $50, to around $1,800 per ounce. “There will be a lot of volatility in prices over the next year,” he predicts, and he wouldn’t be surprised if the price reaches $1,900 in the next year.

Longer term, gold appears to be a superior bet. “Conditions for gold are perfect, with high inflation coupled with falling stock and bond markets sowing the seeds of fear,” says Will Rhind, founder and CEO of Granite Shares, an ETF provider.

Inflation has indeed risen. According to TradingEconomics.com, it reached an annual rate of 8.6%n May, up from a fairly modest 5.3%in August. And experts don’t anticipate any relief coming anytime soon.

However, a strong US dollar is limiting the metal’s price, according to Rhind. According to TradingEconomics, the dollar index, which measures the value of the US dollar against major currencies, has reached its highest level since 2002. Bullion prices tend to move in the opposite direction of the value of the dollar.

According to Rhind, the dollar rally will eventually come to a halt. “That is when the gold price will take off,” he predicts.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Patrick

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