The last several weeks have seen a resurgence of market volatility, and many investors are wondering if there is more to come. Through a very bumpy October for equities, gold made some solid strides higher as risk aversion increased.
Markets have been a bit calmer in recent sessions, and the yellow metal has seen some declines taking it back to the $1200 level. The recent pullback is not due to the possibility of stocks stabilizing, however, but rather is due to a stronger dollar. The greenback has seen capital flowing in again in recent days and is currently trading around a 16-month high.
The move higher in the currency and the move lower in gold did are not a matter of coincidence. In fact, you could make the argument that the dollar is the single most important factor for gold and other dollar-denominated assets. It’s really quite simple: A weaker dollar makes the metal relatively less expensive for foreign buyers while a stronger dollar makes it relatively more expensive. For that reason, a strong correlation is often seen between the two asset classes.
The strong correlation between gold and the dollar are also the single biggest reason every portfolio should contain the yellow metal. The dollar has lost much of its value in recent decades and is likely to continue to lose value as the years go by. In fact, fiat currencies, by their very nature, have a strong tendency to decline in value and the greenback will not be any different.
Not only do paper currencies decline over time, but the actions of central banks can exacerbate and accelerate those declines. It stands to reason that the laws of supply and demand apply, and when central banks pump their economies full of artificially created currency, the actual per-unit value will go down.
The dollar has benefited from recent tax cuts, fiscal spending and a strong economy. Those factors will not be enough to keep it moving higher indefinitely, however. The effects of the tax cuts will fade, the economy will falter and at some point the government will become unable to service its growing debt load. At that point, the dollar is likely to resume its long-term trend lower, taking your purchasing power along with it.
That is why now, right now, may be the ideal time to start building a significant allocation in gold-regardless of what stocks may or may not do. Adding this key asset class to your portfolio has never been easier.
Speak with an Advantage Gold account executive today about the potential benefits of gold ownership and to learn more about how it may play a key role in your portfolio. Our associates are here to answer any questions you may have, and can even show you how to build a significant allocation using an IRA account.
The dollar will eventually continue on its long-term trend lower and it will decrease consumers’ purchasing power as it does. Waiting can be costly- explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started now.Tags: advantage gold, central banks, gold, risk aversion, stock market collapse, volatility