In the world economy, there will always be times of uncertainty. If uncertainty was a commodity, you would be buying and selling it often, because at least one part of the world will have some uncertainty attached to it at some point.
The United States is more than $20 trillion in debt.
England will be leaving the European Union.
Greece is months away from bankruptcy and getting itself kicked out of the EU by force.
Three European countries (Netherlands, Germany and France) are having national elections soon, with each country putting forth candidates that are campaigning to get their countries out of the European alliance.
China continues to manipulate its currency. North Korea keeps testing missiles. Japan is on its second Lost Decade.
Investment is About Directions
Notice the word “directions,” plural. No matter where you have uncertainty, you can and should never invest in only one direction – one country, one industry, one investment vehicle. Even when the weather-vane of the markets is pointing in one direction, one should always have a multi-directional weather vane so you are prepared for the winds to change.
Because they will change. What you were certain about this month, you will be uncertain about next month. And it is always said to never invest when you are uncertain.
But it is also always said, once you are in a market, it is never a good idea to get out of the market entirely when uncertainty hits. So what to do when your multi-directional weather vane is reading the winds in no direction whatsoever?
A Golden Opportunity
If you are thinking of investing in uncertainty, because there will always be a supply of it and enough willing people to buy it, then you won’t have to get out of commodities altogether if and when uncertainty hits, as it tends to do when the Middle East explodes.
To follow the advice of not pulling entirely out of a market in times of uncertainty – every market whether it’s a region of the world, an industry or an investment vehicle, has a “safe haven” for just these times.
For the commodities markets, that safe haven is gold.
Gold gets into the headlines every time there is uncertainty, especially in the U.S. markets. When the stock market corrects or crashes, gold-buying commercials are rampant.
But that goes against the “buy low, sell high” investment mantra. If you were to invest in gold, you would do it when you were ready to sell at your peak and use gold as a protection from the correction or crash.
Gold can be a valuable asset when you are not just confused, but also when you’re scared. Why? While gold can be volatile, it is not nearly as volatile as other commodities such as oil or natural gas, or even some food items. Gold is generally stable, though it does have bull and bear runs – but it’s rarely in a very short amount of time like days or weeks. If you are a little late getting in on a bull run, you can usually hop on the train and still ride it because fear takes time to work its way through a market and sometimes even longer to be relieved.
Trump and the Gold Bulls
As with many markets leading up to the U.S. presidential election in 2016, commodities like gold had a Hillary Clinton win “baked” into its pricing. With many thinking that Clinton would win and press forward with many of the policies of the last administration, there was a bit less uncertainty in the markets among investors. For the most part, they pretty much had an idea what they were going to get in a Clinton administration, so markets were somewhat stable.
Then November 8th happened.
While the stock market has rallied feverishly in the last three months (up more than 15 percent since Election Day after being flat in the four months prior), gold has also rallied.
That doesn’t make much sense, usually. Buying into a stock market is usually a sign of certainty, while buying into gold is a sign of uncertainty or fear. So what gives?
It’s a two-edged sword. The stock market is optimistic about the future growth of the American economy, while gold is uncertain with the world economy. All the “fires” that are burning right now, mentioned earlier in this piece, are the factors that are driving more investment in gold, and have driven a bull market that perhaps not even a Fed interest rate hike (or two) will change.
Trump is being blamed or credited for the bull market because while Clinton was “baked” into gold prices, Trump’s apparent like for more government spending (at least based on some of his stated policy positions) has surprised some into thinking that at least some of Clinton’s policies may be implemented after all. And with the debt number already unsustainable, Trump’s rhetoric before he submits his first budget has created an extra level of uncertainty, if not outright fear, about how sound American fiscal and monetary policy are in the coming years.
When it comes to gold, make sure to stick to the same philosophy as with stocks or most other investment vehicles: Buy low, sell high. Buy the uncertainty, sell the fear.
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