From all indications gold’s stellar first-quarter upswing has been anything but a fluke. Investors worldwide have fled into the first several days of the second quarter of 2016 with a deliberate and stealthy risk-off strategy.
Even after a more measured performance in March, money managers are still wagering gold has plenty of steam left for the long haul. Much of investors’ appetite for the shiny metal has been stoked by our Fed’s decision to keep rates low, which continues to render interest-bearing assets unappealing. Why hang around in cash if you can preserve its buying power much better with a conservative, safe and tangible asset?
On a related note, as professional traders and investors see it, the bloom is off the rose when it comes to central banks. The efforts of these august institutions have proved feeble in jump-starting a global economy mired in deflation and tottering towards recession. According to Maria Smirnova, portfolio manager at Sprott Asset Management in Toronto:
“There’s a sea change going on around the world with the realizations that the monetary policies have not been as effective as central banks had hoped. We don’t see inflation. Rates are declining. That’s positive for gold right now.”
In a March 29 speech before the Economic Club of New York, Fed Chair Janet Yellen chose to attribute blame to the economy as a whole, rather than to central bankers, proving once again that the buck has wheels. But at least one trader, Ira Epstein, Managing Director of the Linn Group, a Chicago commodity broker, feels there are a number of forces hamstringing the global financial outlook, while agreeing with Yellen that U.S. companies are suffering from weak earnings. Add to all this the recurring nightmare of Greece’s bailout problems, which could grow worse this summer – a development likely to undermine what little confidence is left in the EU economy.
Gold, then, is clearly the current safe haven of choice for professional investors. On the heels of the yellow metal’s biggest quarter in thirty years, hedge funds – an increasingly strong group of market makers – have reported net-long holdings in gold futures and options, according to the U.S. Commodity Futures Trading Commission. It’s a good sign they’re confident gold has robust upside potential.
Now ask yourself: If investors accustomed to risk are now flocking to gold as a safe haven, wouldn’t it be a good idea for you to follow their lead? They see gold’s priced attractively right now. Dollar-cost-averaged purchases of physical gold over time offer an effective strategy for protecting your retirement savings from the ravages of Fed whims, a contracting global economy and prolonged deflation.
And if the Fed eventually does pursue a policy of negative interest rates, you’ll feel relieved you avoided loading your bank account with vulnerable dollars and instead chose to invest in gold. Future-you will be so grateful if you do the same for your IRA.