Very few assets offer as attractive a combination of fundamental drivers, relative cheapness and the potential for substantial gains over the next few years as gold, writes Mike Larson.

I’m not a gold bug. I’m a generalist. A guy who focuses his research on many markets, only one of which is precious metals. There are times when I love gold, times when I hate it and times when I just ignore it.

But right now, I believe you have to get on board with gold. Very few assets offer as attractive a combination of powerful, fundamental drivers, relative cheapness and the potential for sizable gains over the next few years.

Let’s start with interest rates. One of the biggest complaints about gold is that it doesn’t yield anything. Unlike a government, corporate, or asset-backed bond; not to mention, dividend-paying stocks, it doesn’t spin off any income.

That issue always lurks in the back of people’s minds. But it moves to the forefront when central banks go on the interest rate warpath. Each hike they implement causes gold’s yield disadvantage to grow. But as I’m sure you know by now, the Federal Reserve hit the panic button several weeks ago. After spending years planning and implementing a series of steps to raise rates and shrink the balance sheet, they threw it out the window.

They paused their rate hikes and hinted the balance sheet could remain much larger than previously thought. Many foreign central bankers began singing from the same dovish hymnal, too.

Now ignore for a minute whether that will work in terms of re-invigorating the stock market or the economy for more than the short term. My research and decades of credit cycle history suggests it won’t. What matters for gold is that it halted the rise in U.S. rates. It also helped drive yields on many foreign bonds deeper into negative territory.

In fact, benchmark German government bonds are trading with negative yields all the way out to more than nine years on the maturity curve. Swiss government bonds are now negative all the way out to 15 years. The only way you can find a positive rate of return is by locking your money up for several years, or in some places, more than a decade.

That’s incredibly bullish for gold based on math alone. After all, 0%-yielding gold beats the negative-whatever you’re stuck earning on many government bonds.

Volatility

Now let’s talk about volatility. The same soothing central bank chatter that sent yields down helped drive the CBOE Volatility Index (VIX) lower. But it’s still higher than when market complacency hit all-time highs in 2017. And as I’ve stated before, that low-volatility era is over.

That brings me back to gold. It’s the ultimate safe-haven investment. It’s no coincidence that both gold and volatility bottomed around the same time last summer, then rose in tandem. It’s also very interesting that gold didn’t pull back when the VIX declined recently. That tells me investors may be much more concerned about renewed volatility than they’ll admit publicly.

Speaking of potential volatility, keep this in mind: When the stock and credit markets go haywire, it tends to bolster gold prices, too. That’s because gold offers chaos insurance, or protection against the unknown.

Now, think how incredibly valuable that kind of protection should be today given: A) The explosion of untested, experimental, side effect-laden monetary and fiscal policies of the past decade and B) The extraordinary size and scope of the asset bubbles that have built up as a result.

In the second half of 2007 and the first half of 2008, when markets began plunging last time, gold surged to around $1,030 per ounce from $680. During the bear market that ran from 2001 through 2003, gold surged to around $390 from $255. Those are gains of 51% and 53%. Not too shabby, especially when you consider what happened to stocks during those timeframes.

There are numerous additional bullish signs for gold. China just threw more stimuli at its economy, which has helped bolster metals prices. Gold seems to have broken free of its tether to the U.S. dollar, rising in value regardless of whether the greenback is up or down. And unlike most other asset classes available to investors, gold isn’t radically overvalued already.

You get the picture: Gold has a ton of things going for it. That means investors have a lot of different ways they can win by investing in metals.

What to do

Own some gold bullion or coins in your portfolio, either directly in physical form or indirectly through exchange traded funds like the SPDR Gold Shares (GLD) or iShares Gold Trust (IAU).