Slowing economic growth globally has led for some rough days on Wall Street lately.
The Dow Jones industrial average and the Standard & Poor’s 500 index are both down by 6 percent so far this year. It’s sometimes hard to figure out where to park one’s money during an economic downturn.
Still, analysts have a few ideas on how to capitalize on the slump – or at the very least minimize losses or stash away capital until markets begin to recover.
Gold, treasuries and other bonds tend to be so-called haven investments, where investors often park their cash until equities recover. Like clockwork, investors have been dumping money into gold and treasuries since the start of the year.
Gold futures have jumped since the end of last year as money managers flee equities. The rate on 10-year Treasury bonds has declined by almost a fourth as people rush to invest in the low-yield, low-risk investment. Dumping money into both is a trend that’s expected to continue.
The biggest beneficiary of the slowing growth thus far has been gold, a popular haven investment as futures have jumped 14 percent this year.
“The backdrop of robust global demand and increasing financial and economic uncertainty is supportive of gold,” says Mark O’Byrne, the research director at GoldCore. “Janet Yellen’s comments … regarding not cutting interest rates anytime soon were quite dovish and led to gold’s gains. The fact that she reiterated the Fed expects to raise rates at a gradual pace and yet gold continued to rise … is quite bullish.”
Still, the rapid increase in gold prices has put investments in peril as futures may have risen too far, too fast, O’Byrne says. In fact, analysts say it’s probably not smart to simply dump stocks when prices decline because, as the investment playbook goes, markets tend to turn the moment everybody moves to one side of a trade.
Instead, investors may want to gradually shift to a less equity-centric portfolio.
“In the short term, we would caution against dumping stocks and buying gold as many indices globally have fallen sharply and gold has risen sharply,” O’Byrne says. “However, taking a long view, I think investors who are overweight (in) stocks should use any bounce in the market to lighten up positions and gain an allocation to gold.”
GoldCore research advises clients to have a 5 percent to 10 percent exposure to gold, but in the current economic environment, they’re recommending a 20 percent allocation.
“This diversification will act as a hedging instrument and protect stock and bond investors from further losses,” O’Byrne says. “Indeed, given the inverse correlation of gold to stocks, it should reduce the overall volatility of a portfolio and enhance returns as was seen in the 2001 to 2011 period.”
Slow Economic Growth? Look to Gold, Treasuries as Haven Investments Full article on U.S. News here
Gold – From Depression to Hope
LBMA Gold Prices
23 Feb: USD 1,208.45, EUR 1,078.94 and GBP 834.57 per ounce
22 Feb: USD 1,203.65, EUR 1,088.17 and GBP 849.21 per ounce
19 Feb: USD 1,221.50, EUR 1,101.14 and GBP 853.35 per ounce
18 Feb: USD 1,204.40, EUR 1,082.41 and GBP 841.19 per ounce
17 Feb: USD 1,202.40, EUR 1,080.57 and GBP 838.84 per ounce
16 Feb: USD 1,212.00, EUR 1,083.75 and GBP 838.04 per ounce
Gold and Silver News and Commentary
Gold climbs as stock rally fizzles, fund inflows support – Reuters
Gold Logs First Loss in Four Sessions; US Mint Bullion Coins Rise – Coin News
Gold futures mark first loss in four sessions – Marketwatch
Gold dips 2 pct on stronger dollar, shares – Reuters
Foreign central banks dump cash at U.S. Federal Reserve – Reuters
Here’s Another Reason Gold Prices Are Poised to Go Higher – Bloomberg
Fed official warns on rush to ‘government-only’ U.S. money funds – Reuters
Monetary Policy – If Crazy Doesn’t Work, Try Crazier – Mauldin Economics
Silver Linings: Keynesian Central Banking Is Heading For A Massive Repudiation – Stockman
Monopoly Is Going Cashless. Could We Be Next? – GoldSeek