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General Precious Metals
3 Reasons the Gold Price is at a Tipping Point
Investors often hear that they should include gold in their portfolios, and with the yellow metal’s price on the rise this year those calls are only getting stronger.
Speaking in a webinar on Tuesday (April 28), Mark Stacey, head of portfolio management at AGF Investments, made the case for why gold is at a tipping point, saying that now is the time for investors to seriously look at adding it to their portfolios if they haven’t already.
“I think there’s a number of reasons why people have not been investing in gold, but now is the time to consider it — it should be part of your portfolio,” he began by saying.
Read on to learn the three reasons Stacey thinks the macro environment is becoming more supportive of gold, plus his thoughts on if investors should focus on gold or gold stocks.
1. The US dollar is starting to slow down
Stacey pointed first to the US dollar’s recent performance, putting up a chart showing its rolling 12 month return compared to the rest of the world’s currencies. “You’ll notice that from our perspective it’s starting to wane, it’s starting to slow down,” he said.
“That is a positive,” Stacey continued, noting that despite some periods of strength, the overall trend for the US dollar has been downward for the last several years. “If the US dollar decreases versus the rest of the world’s currencies, that’s positive for commodities.”
2. Inflation is generating negative real yields
Moving on to his second point, Stacey spoke about inflation, saying that while it isn’t “overly high,” it is now high enough to generate negative real yields, which are positive for gold.
“Any time the real yield turns negative and inflation is greater than the yield that’s being posted, you’ll notice that gold has a nice move up,” he explained to listeners. “You can see it in the most recent period, where we’ve seen gold move higher as real yields have moved lower — and so that is a benefit to gold.”
3. The Fed’s balance sheet is rising dramatically
Finally, Stacey commented on the US Federal Reserve’s rapidly increasing balance sheet.
“Obviously they’re increasing money supply (with the hope that it will eventually) cause inflation. But it also means that there’s concerns about currencies in general, and that should cause the US dollar to decrease as well.” As mentioned, falls in the US dollar tend to be positive for commodities like gold.
The opportunity for investors
According to Stacey, gold and gold stocks are already starting to reap the benefits of these macro environment developments — as evidenced by the growth they’ve started to see.
Displaying a chart showing gold and gold stocks compared to US equities, he noted that while US equities have performed better “for the last number of years,” more recently gold and gold stocks have started to take the lead. And in his opinion, this is only the beginning of the yellow metal’s rise.
“Despite the move in gold and gold stocks more recently, it is still very early on when you compare back in history,” he said. “Back the last time that we saw gold and gold stocks rally — back in ’02 all the way up to 2011 — (gold had) a 500 percent 10 year rolling return. Right now we are at about 40 percent.”
Asset allocation is changing, diversify with gold
Encouraging investors to take advantage of gold’s potential, Stacey said he thinks that the traditional portfolio asset allocation is changing — where portfolios typically used to be made up of equities and fixed-income investments, now there’s a case to be made for including alternatives like gold as well.