In late January, we wrote an article on SeekingAlpha voicing our opinion and concern that gold pessimists were ignoring certain fundamental issues that typically affect gold demand and prices.
Our confusion stemmed from the marginalization of uncertainty in today’s very uncertain geo-political landscape, and the assumption that inflation was much further out into the future.
In that article, I posted a chart by Merk Investments that analyzed the price of gold in presidential transition years going back to 1974. (See below) In all instances but one, gold prices increased and the average price increase was 14.8% compared to minus 0.9% for the S&P 500.
Now, pick up any newspaper or visit any online news source and what you see are a variety of headlines that, if you ask me, relate to a very heightened level of uncertainty. Russia, North Korea, NATO, and China, to name a few topics in the headlines. And I don’t think any of these issues will be resolved in the short-term. Hence, our opinion that uncertainty is a much bigger risk than gold pessimists were highlighting.
I also mentioned in that article that gold is often used as an inflation hedge. While we don’t think inflation is a threat just yet, it has been creeping up – and the reversal of dollar strengthening could give it the last jolt it needs to surpass and remain above 2% and climbing.
We prefer to be early to the party and wait it out than to show up right as it collapses. So as we mentioned back in January and we reiterate here, if you don’t have gold in your portfolios, you might want to consider sprinkling some in.
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