If gold were as dead as many naysayers declared last year, they would have felt pretty lonely if they’d shown up for the funeral on February 2. At the Comex close that day, the yellow metal finished up one and three tenths percent at $1,141.30 – its highest close since October 30 of last year. Furthermore, gold futures broke above the two-hundred-day moving average – always a bullish sign.
On the heels of a weakening dollar and a softening economy, gold is up seven and three tenths percent for the year, outperforming all other commodities during the same time period. Investors who suspect the Fed will now be slower to pull the trigger on future interest rate hikes are beginning to enter the gold market. In fact, every day more experts are acknowledging that our economy is showing marked signs of contracting.
According to the prestigious Institute for Supply Management, its recurring measure of non-manufacturing activity slipped to fifty-three and five tenths percent in January, down from December’s figure of fifty-five and eight tenths percent.
Then New York Federal Reserve President William Dudley announced Wednesday that financial conditions have “tightened considerably,” and the softening global picture could have “significant consequences” for the U.S. economy. Wherever you turn worldwide, you see evidence of this softening. German five-year bond yields are at record lows, European corporate bond yields have fallen below zero, and Japan’s entertaining issuing a government bond with a negative yield.
Right now U.S. Treasuries may be slightly better off, but for how long? Barron’s Amey Stone reports one reader sent her this witty yet sad email: “With Europe and Japan going to ZIRP [zero interest-rate policy], U.S. Treasuries are the best house in an economic slum.”
So if you’re looking for a real safe haven from current global investment weakness, why would you even think about U.S. Treasuries when gold has already popped the lid off the two-hundred-day moving averages with a clear buy signal?
The catch? If you phone your broker and say you’re thinking of moving part of your portfolio to gold, he’ll probably try to steer you to items he can make a profit on: Exchange Traded Funds (ETFs), gold funds or mining stocks. But make no mistake; none of these give you the protection of physical gold.
If you buy an ETF, you’re buying a marketable security, but you just can’t waltz into your local gold shop and ask the proprietor to remove the gold in your ETF with a sieve. For one thing, there may not be any real gold to get. Second, the whole point of investing in precious metals is to gain a tangible asset. Why would you toss away gold’s greatest strength to turn it into the very thing you’re trying to avoid – a piece of paper that says it’s worth something, but ultimately may not be worth anything at all?
You achieve a similar self-defeat with gold funds; a fistful of paper. And mining stocks? They seem sweet when their price shoots up. But you have zero recourse if that mine’s suddenly besieged by management issues or a miners’ strike, the very forces beyond your control that make relying on stocks increasingly dangerous in a downhill market. With physical gold, even the worst day on the market has no effect on the size of your stash, except potentially increasing its value.
If you were holding gold, coins you’d purchased only at the beginning of this year, they’d now be worth more than seven percent above their value when you bought them. If current trends continue, they’ll be worth considerably more in the months to come.