This holiday season presented investors with a bear market.
After a volatile year, the market is set to close on a low note. Year to date, stocks are down 7%. The picture is even worse if you consider the S&P 500 Index is 15% off its September high.
Even bonds were hit hard by 2018. The U.S. 10-year note is down 2% for the year.
Investors looking for a safe haven have few options. But now is the perfect time for this classic asset to shine.
Gold started 2018 on a bad note. The yellow metal fell 13.7% from January to August.
Hedge funds bet big against gold. In October funds shorted gold to record levels. Investors were all on one side of the boat.
The market volatility coming into winter shook funds from their short positions. Gold rebounded over 7%.
But this precious metal has much further to run.
Gold isn’t just a good-performing asset during market sell-offs. It also shares in the recovery.
During the dot-com crash, gold gained 13% while the S&P 500 fell 47%.
In the two-year recovery following the crash, the S&P 500 clawed back a 51% gain while gold rallied an additional 39%.
The recession in 2008 saw a similar trend. The S&P 500 shed 56% of its value. Gold gained 26%.
The following two years saw an epic 91% rally in the S&P 500. Gold delivered a further 53% gain.
Gold’s ability to hold strong during a market sell-off — and to partake in the subsequent rally — makes it a must-own in any portfolio.
Much of gold’s weakness this past year was from a strengthening dollar. Now with the threat of a slowing economy and fewer interest-rate hikes, the dollar is likely to show signs of weakness.
Holding a modest position in gold of 5% to 10% of your portfolio can be an excellent insurance policy against a weakening market and dollar.
Consider the SPDR Gold Shares (NYSE: GLD) or the Sprott Physical Gold and Silver Trust (NYSE: CEF) as an easy way to add gold exposure to your portfolio.
Good investing,
Anthony Planas
Internal Analyst, Banyan Hill Publishing
