What’s Behind the Gold Hype?

It’s been a hectic past few weeks, and you’re about ready to throw up your hands.  So what, you say, if hedge fund king George Soros just invested heavily in gold? What’s the big deal if billionaire investors David Einhorn and Stanley Druckenmiller made the same play? What’s that got to do with me?

After all, big-money investors at one time or another have invested in fine wine, copper mines in Peru, movies starring nobody special, and arena football… Does that mean you should follow these moguls’ lead wherever they roam?  Well this time, the math says, “Yes.”

In a May 23 article for The Street, research analyst and trader Chris Vermeulen makes it clear why gold is far from being a crank investment, and is actually a basic, necessary asset to own. He doesn’t even try to equivocate, declaring, “Today, the first best investment opportunity is to be in gold.”

Furthermore, he says, “Gold will be a top-performing investment over the next three to five years,” pointing out that during financial crises the yellow metal is one of the few asset classes that reliably holds its value.

Vermeulen backs up this assertion, citing the Elliott Wave Theory – a very technical formulation about investment cycles that experts have relied on since its inception. The basic theory is that what can seem like arbitrary movements in stocks and commodities are actually predictable patterns, or “alternating peaks and valleys.”

In this context, Vermeulen emphasizes:  “Our current analysis is that gold has hit the bottom of its recent downtrend and that the price gains it has made since 2016 are forming a new substantial uptrend.” Yet, for all his skepticism about equities, he’s not entirely negative about the stock market. Vermeulen urges investors to keep some cash on hand for when select opportunities arise—so long as you already have your gold investments in place as a hedge against downturns.

Vermeulen has some very respectable company. Boris Schlossberg, managing director of FX (Foreign Exchange) strategy at BK Asset Management, is even more negative about the stock market. He’s also not concerned about notions a possible Fed rate increase could negatively impact gold.  On a May 23 CNBC Power Lunch broadcast, Schlossberg bucked the “accepted wisdom”:

“If you look at gold on a very long-term basis, there is literally very little correlation between interest rates and gold…. Basically, gold rose when interest rates rose in the ’70s, gold rose when interest rates declined in the ’90s….”

In fact, suggests Schlossberg, a Fed rate increase could jump-start a sell-off in stocks, which would be great for gold.

In that same broadcast, Oppenheimer technical analyst, Ari Wald, reports he too likes gold for the longer term.  Its current price levels, between twelve hundred and thirteen hundred, present a favorable opportunity to invest in the precious metal at still-attractive prices.

From both a technical and fundamental perspective, you’re now armed with plenty of information to feel confident about an investment in physical gold.  The shiny metal’s slight retreat in price actually represents a breather, or Elliott Wave “valley,” if you like. But what this stampede of experts to gold makes clear: you’ll be losing out if you don’t take full advantage of this short respite in gold’s rocket ride to the upside.