Sponsored Content: When we gathered for the MoneyShow Conference in Las Vegas in May, the one question on everyone’s mind was, “Why isn’t gold doing its job?,” states Rich Checkan, president and COO, Asset Strategies International.
My answer was…“It is.”
Since then, gold has fallen roughly another $100 per ounce. That may be causing uneasiness and doubt for some investors, but not for me. My answer to that one question remains the same.
Let me explain…
Why Did the Gold Price Fall?
Before I make the case for gold doing its job, let us first consider why the price of gold has fallen this year.
There are several reasons.
First, gold has been consolidating. After reaching new all-time highs in August 2020, gold pulled back to build support for moves higher.
This was necessary given how quickly the gold price rose to $2,075 per ounce amidst the Covid pandemic.
Second, As the tough-talking Federal Reserve Chairman Jerome Powell removes liquidity from the market, the asset “Everything Bubble” they created is beginning to deflate.
We can see this across the board…
- Dow Jones Industrial Average is down 15% for the year.
- S&P 500 is down 21% for the year.
- Nasdaq is down 28% for the year.
- Bitcoin is down 56% for the year.
- Silver is down 20% for the year.
- Gold is down 7% for the year.
I know the headline numbers are inflationary. That will rear its ugly head soon enough. But right now, asset prices are deflating as the Federal Reserve tightens monetary policy.
Third, as equities sell off, leveraged accounts hit margin calls. As they do, investors sell the most liquid assets they can find to meet those margin calls.
Typically, gold and silver provide investors with that liquidity. Both tend to fall initially with stocks, but they recover much sooner.
Lastly, relative to the rest of the world’s major currencies, the US dollar appears strong. A focused analysis of the US dollar’s fundamentals would know doubt reveal inherent weakness, but relative to other currencies, the almighty dollar is surging this year…up 13%.
That makes it the best-looking horse in the glue factory. It also provides significant headwinds for gold’s price appreciation.
When Does Gold Shine?
If you ask ten investors when they expect gold to perform well, I dare say nine or ten of them will say gold shines in an inflationary environment.
They would be correct.
But what they may not know is that gold actually performs well in a deflationary environment as well. In fact, that’s what is happening right now.
Although the gold price is deflating at the moment, it is doing so at a much slower pace than other asset prices. If you look at the percentage depreciation of the assets listed above, the Dow is the closest to gold.
Yet, gold is falling at less than half the pace of the Dow.
Bottom-line, gold tends to depreciate as well in a deflationary environment, but it tends to out-perform other asset classes all the same by depreciating much slower.
When things turn inflationary—and we do believe they will—that’s when gold really shines.
We saw that firsthand in the last gold bull market from 2001 through 2011. During that period, gold appreciated by over 600%. To date, gold has held onto most of those gains.
Largely due to that bull run, gold is still up nearly 500% for this millennium…from January first, 2000, until the present. Over the same period, silver is up roughly 250% while the three major US stock indices are up between 160% and 180%.
As we look forward from here, we fully expect deflation to transition to stagflation—a period of weak economic output and high inflation.
When that occurs, gold’s fans will be vindicated, and gold’s naysayers will be proven wrong…again.
Until then, those of you in the market for gold has been given an incredible opportunity to buy gold very well.
Most of the experts we spoke with over the past month were surprised gold fell below the $1,780 to $1,800 range. At around $1,700 per ounce, they were all unanimous that gold was an excellent bargain. All believe gold is oversold at these levels.
If you are like many investors, sitting with cash on the sidelines looking for a direction from the markets, I strongly urge you to consider exchanging some of those temporarily strong US dollars for some temporarily low-priced gold.
Fundamentally, the dollar should not be strong. Yet, it is up 13% thus far this year. Take advantage of that. The favorable exchange rate of dollars for gold is a fantastic way to Keep What’s Yours!
And…don’t forget about buying gold for your Individual Retirement Account (IRA). Now is a great time to secure your purchasing power for your consumption years. Stretch your dollars now by purchasing some gold.
Call us at 800-831-0007 or send us an email to set up a consultation…now…today! Let us help you ensure your retirement and non-retirement portfolios are protected against the future depreciation of the dollar.
Visit Asset Strategies International to learn more about investing in precious metals and other alternative asset classes.