Why Investors are Rushing to Gold as Global Risks Mount
These days, it seems like investors around the world are rushing to gold. Just a year ago, things seemed to be going on well around the world. The Trump administration had just passed a sweeping tax reform bill. The administration was also removing the many unnecessary regulations that were holding the country hostage. The unemployment rate was low, business and consumer confidence were soaring, and everybody seemed happy.
Signs That US Economy Has Weakened
Today, things have changed and the sentiment has weakened. Consumer and business confidence have eased, wages have stagnated, the housing starts are easing, and confidence has waned. There are a few reasons for this. First, Donald Trump’s trade wars have led to caution from companies and investors. Consumers too are worried about the impact these wars will have on their purchases. Second, economies in Europe and Asia have worsened.
Third, the ongoing political drama has made congress dysfunctional. Companies, especially retailers are also laying thousands of people off. Fourth, the United States debt is getting out of hand. The recent deal between democrats and republicans and the recent tax cuts have led to a huge debt.
The impact of these risks is evident, especially in the financial market. Recently, the yield curve of the U.S bonds has flattened, leading to more talk of an upcoming recession. A yield curve inversion happens when the yields on short-term bonds become higher than those that are dated for longer. Historically, this yield curve inversion has been a good signal about an upcoming recession.
Another sign of potential risk in the market has been the CBOE volatility index, commonly known as the VIX. This is an index that uses options to measure fear among investors. This year, the VIX has risen by almost 30%. Further, the so-called safe havens have risen too. Two currencies that are known as havens are Swiss franc and Japanese yen. The two have gained by 1% and 2% respectively against the USD.
Why Investors are Rushing to Gold
Another safe haven asset that has seen its price increase is gold. As of this writing, the gold price has risen by 17%, meaning it has outperformed the overall stock market. Gold price is currently at the highest level since 2013.
It is easy to explain this situation. For centuries, gold has been the most valued metals in the world. Old manuscripts like the bible talk about its value. In recent years, gold has become an important store of value that is mostly bought by central banks and large investors. Recently, countries like Russia and China have moved to boost their gold holdings. This is because these countries have been critical about the US use of the dollar. This has led to an increase in demand for physical gold at a time when gold reserves are easing.
Gold is unlike other currencies and its price is affected by the monetary policy of the Federal Reserve. After having a hawkish year in 2018, the bank has now been forced to change tune. In July this year, the bank slashed interest rates for the first time since the financial crisis. In its decision, the bank said that the economy had started to weaken, mostly because of the trade war. Today, most investors believe that the Fed will be forced to slash interest rates again. As a result, the value of the US dollar could drop as investors move to other safe havens. Gold will be a beneficiary to this.
The Future of Gold
In recent months, there has been talk about the gold price reaching $2000. Other analysts have predicted that the price could reach $5,000 in the next few years. All this has attracted hedge fund heavyweights like David Einhorn, Ray Dalio, and Stan Druckenmiller to own gold.
Therefore, most Americans are moving to gold IRAs to protect their wealth as risks mount. There are some more reasons why gold IRAs make sense. First, gold will always be worth something in case of an economic collapse, gold will move up even when the dollar is devalued, it has outperformed stocks in the past six years, and it is a global store of value that is held by most central banks.
Follow this link if you are interested in gold IRAs.
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