Don’t Give Up Your Gold

Gold

Gold is not dead.

Just ask Germany.

Germany’s Bundesbank recently announced that it finished its transfer of $13 billion in gold bars that had been stored in vaults under Lower Manhattan, bringing the metal back home again. The country had started repatriating its gold in 2013 with the goal of storing 50% of its reserves in Frankfurt once again.

When the gold transfer is complete, Germany will have removed all the gold it stored in Paris, left behind only 13% of its reserves in London and approximately one-third of its reserves in New York coin market.

With the rise of cryptocurrencies – such as bitcoin – and digital cash, such as PayPal, Apple Pay and other apps, there has been a steady drop in the use of physical cash, making the yellow metal feel downright archaic.

But gold holds a special status, stronger than even the couple twenties in your wallet right now. The precious metal offers a blanket of safety and security. It is seen as more trustworthy than any government-issued currency.

Just look at the euro – a currency for a union of countries that is threatening to tear apart. (Germany certainly feels better having its gold home again.)

Or even the U.S. dollar – a currency backed by roughly $20 trillion in debt.

Not only is gold alive and kicking, but it needs to play an important role in your portfolio…

Let me just start with this: I’m not a goldbug.

I’m a trader, first and foremost, and usually with a short time frame as my target. I was raised on the versatility of options and the quick trade for nice profits. I don’t care whether the market is bull, bear, or – shudder to think – range-bound. There’s always a way to make a profit if you know where to look.

But gold is a tricky thing.

It doesn’t pay a dividend, so there’s an opportunity cost associated with the metal.

However, when there is uncertainty in the market, shaky economic growth or geopolitical discord, gold shines as a safe haven in the storm. When stocks are getting hammered, investors will run to gold as a safe way to store some of their greenbacks rather than just converting it to cash and stuffing it under their mattresses.

And going by the way gold has been trading, it looks as if many investors aren’t too sure about this market rally.

The Hedge

In 2016, the price of gold rallied more than 8%, nearly keeping pace with the stock market, as the S&P 500 gained 9.5%.

In fact, the World Gold Council reported that gold demand rose 2% in 2016 to 4,309 tons, tagging a new three-year high.

And less than two months into the new year, we have gold up another 8%, beating the S&P’s gain of approximately 5% – which is noteworthy.

When stocks are strong and investors believe in the market rally, they are happy to abandon gold for high-flying stocks that promise a far better return.

For example, during the dot-com bubble, the S&P 500 rallied from January 1995 through September 2000 by more than 200%. In contrast, gold stumbled 27% during that same time period.

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