You see the fear mongering ads online and on TV “A stock market collapse is coming. It’s time to buy gold now.”
Are these messages just a bunch of BS or is there something here you should pay attention to?
Now, I have no idea when the next stock market downturn is going to happen nor does anyone else. What we do know is that the stock market moves in two directions: up and down. History shows us that a downturn should eventually occur. In this current environment it is not possible to predict how much of a drop we will see. However, analysts and marketers love to use scare tactics and words such as “collapse” and “catastrophic” when it comes to the next market drop.
Gold has an interesting relationship with the stock market. Historically gold has provided a hedge against a stock market drop. In years that the stock market went up, gold prices have moved along based on supply and demand. However, when the economy started to look bleak and rumblings of a stock market downturn started taking place, gold did something very interesting. The price of gold started moving up. You see, gold has long been a place where investors run when the markets start taking a dive because historically gold prices tend to move up when the stock market is moving down.
However, during the last major correction back in 2008, using gold as a hedge didn’t really work as expected. Rather than increasing in value, gold dropped significantly in 2008. It did eventually rally. In 2009 the price of gold began and continued to rise until it reached its all-time high of $1917 per oz back in 2011. As of July 29th2019, the gold price is sitting at $1421 per oz.
Hedging with a non-correlating asset like gold may or may not be suitable for you and your portfolio. If it is, then it shouldn’t be a major portion of your holdings. A hedge is there to protect the rest of your portfolio and isn’t meant to be your entire portfolio. In the past, I’ve had folks panic during a market downturn and want to go 100% into gold or commodities (another market hedge). This is not the solution.
I like the idea that gold is a limited resource and one that has demonstrated many times that it can be used to hedge and protect the rest of your holdings during most stock market declines. My crystal ball seems to be broken. It has yet to show me the future of the stock market. But I can speak to historical trends and gold has seemed to be a good hedge in the right portfolio for sure.
How do you buy gold? You can buy gold mining stocks, a gold ETF like (GLD) or if you prefer holding real gold (even in your IRA, which is pretty darn cool) you can do so! You can get a free report here on how to do that.
Is gold for you? Maybe or maybe not but it shouldn’t be discounted. You should take a serious look at it. There are many asset classes that can make up a properly diversified portfolio and precious metals, gold specifically, can be one of them.
Live free my friends,
Eric Gaddy
