Gold Investment Rallying In 2016

For millennia, gold has been synonymous with lasting value, and that is holding true today. After hitting an all-time high of $1,921 per ounce in 2011, the price of gold dropped significantly. But now it has rallied 19% for the year, rising above $1,300 f

Why Gold Is Bouncing Back

Gold has been behaving exactly as expected, once again demonstrating its role as the one portfolio element that investors can rely upon for stability, diversification and a hedge against inflation. "In 2008 during the subprime mortgage crisis, there was serious concern about rising inflation due to the amount of money the Fed was injecting into the economy via quantitative easing,” notes Nathan Camp, CEO and president of U. S. Precious Metals.

Then the investment landscape changed again. “In early 2009, the Dow was at 6,500, while today it is sitting around 18,000, with lots of money being pumped into the U. S. economy through the Federal Reserve,” explains Tyler Gallagher, CEO of Regal Assets. “I think investors are smart enough to realize that right now the Dow has a lot more downside risk than upside potential, and that’s leading to gold’s new bull run.”

“I don’t think anybody knows what governments are going to institute next. So many people were financially blindsided during the last recession, and now with more volatility and talk of negative interest rates, investors are starting to position themselves in safe-haven assets such as gold and other precious metals,” Camp adds.

The strategic Portfolio essential

Because gold is both a commodity and a form of currency, it behaves independent of most trading markets, as well of the policies or events of any one country or economy. Consider the following: Unlike a currency, which can be debased when more of it is printed, the supply of gold essentially doesn’t change, and mining has even slowed down in recent years. As a result, gold thrives in inflationary times. Demand for gold stems from diverse sources, including jewelry, industrial consumption, central bank purchases (up 25% in 2015, according to the WGC), and, of course, investing (up 122% in Q1 2016). Gold is typically less volatile than major stock market indices such as the S&P 500, and it is much less

volatile than other commodities, thanks to its liquidity, the availability of large aboveground stocks, and geographical diversity of mines and reserves. This means that adding a strategic allocation of gold to a diversified portfolio—experts recommend about 5%— creates a number of potential benefits, including an effective hedge against inflation, dollar depreciation and stock market volatility.

A CRITICAL HEDGE AGAINST GLOBAL INSTABILITY

While trading markets pull back and economies continue to stumble, the U. S. and many other countries around the world have adopted unprecedented monetary policies. In the U.S., quantitative easing resulted in a massive expansion of currency, while the prime interest rate remains close to zero. Japan, the EU and various nations even have been experimenting with negative interest rates designed to increase spending, which in turn could fuel inflation.

“Since the creation of the Federal Reserve, the dollar has lost 95% of its purchasing power, while gold has remained a great store of value,” says Camp. “It has maintained its purchasing power over long periods of time, unlike all of the fiat paper currencies that have been introduced over the years.”

OWNING GOLD

Now, more than ever, gold’s lasting value and low correlation with traditional asset classes make it an essential investment. “You’re not buying gold because you think you’re going to become wealthy from it,” Gallagher explains. “Gold is preserving what you’ve worked so hard for. It’s guarding your wealth against inflation and economic instability.”

Gold is sold in many forms, including bars, bullion, coins and exchangetraded funds (ETFS). Gold and other physical precious metals can even be owned through individual retirement accounts (IRAS) and 401(k)s. Camp and Gallagher both believe that owning physical gold has clear advantages over ETFS. “ETFS are a piece of paper saying you own gold,” Camp explains. “You can’t touch an ETF or trade that piece of paper sight unseen for equal value to gold's current world spot price—whereas with physical gold, an ounce in my pocket is worth the same as an ounce in yours; it’s a universal currency in its tangible form.”

“If there’s any type of emergency in your life, you don’t want paper, you want physical,” Gallagher advises. “You don’t want a contract or any sort of promise, but actual physical gold that you can get in your possession in a time of need.”

THE CLASSIC INVESTMENT

“Investors need to realize that gold is not a short- term investment,” says Camp. "People are buying gold these days for security—as a means of storing value in times of economic uncertainty. They want to have it and not need it, rather than need it and not have it. Gold doesn't go bankrupt or need a taxpayer bailout. Gold has never been worth zero."

Camp adds that customers who have done very well with their gold and other precious metals are reluctant to liquidate their holdings and pocket the money.

“They love their coins. Not only do they own an investment that knows no boundaries, they also have these incredible pieces of history and rarity that can be passed down within their families from generation to generation. Many clients say, ‘I’m just going to hang onto these and hand them down to my grandkids.’ That’s a big deal for them," says Camp.

“At the end of the day, the value of gold may temporarily go down when investors perceive some economic growth,” says Gallagher. “But in the long term, gold will always be an asset you can rely on. I think that as we come into 2016 and beyond, we’re only going to be expanding the money supply; the economy will be rocky and unpredictable, but there’s always going to be demand for gold.

“It’s a very simple asset to understand. It’s protection; an insurance policy; a bank to store your wealth," adds Gallagher. "Gold is something to tuck away. It’s like buying a fine painting— buying something that is in your possession and willwi l l be there when

you need it.”