In case you missed it, Barron’s devoted its cover story to gold on September 21.
The title of the article: “Gold Is Cheap. Inflation Is Coming. You Do the Math.”
Kind of catchy, right?
The basic premise of the article is that gold has taken a hit this year (down about 8%), but more importantly – why gold deserves a spot in your portfolio.
The author, Andrew Bary, interviewed a number of portfolio managers and traders. Here is the key premise:
“Compared with stocks and other financial assets, gold looks inexpensive. More important, inflation is starting to pick up in the U.S. and in much of the world as central banks shrink their enormous balance sheets. And gold has represented a good defense against inflation eroding the value of a stock or bond portfolio. Over time, it has held its value against the dollar.”
There’s so many reasons to own gold and Bary hits on most of them in this article:
- Gold is cheap today. He compared an ounce of gold to the Dow Jones Industrial Average. Today it takes about 22 ounces of gold to buy one unit of the Dow. That compares to about 7.8 in 2011, when gold trades to its all-time high above $1,900.
- Gold is a traditional hedge against financial and economic crises. Most recently, after the collapse of Lehman Brothers in September 2008, gold rallied 17%. The S&P 500 fell 40%.
- Gold is rare and it’s difficult to quickly increase the supply of the precious metal. (Unlike a government printing press where the Fed can create trillions of dollars out of thin air.)
- Inflation is starting to pick up in advanced economies. Gold has long been a good defense against inflation erosion in dollar holdings.
While many U.S. investors currently own little or no gold, one of the biggest bulls out there is Jeffrey Gundlach, chief investment officer at DoubleLine Capital, a well-known bond market guru.
Gundlach has turned bullish on gold following the recent short-lived breach of the $1,200 per ounce level.
Here’s how the Barron’s reporter wraps up his conclusion:
“U.S. stocks are at record levels exactly at a time when global stress—trade tensions, populist nationalism, and the like—appears to be growing. This may be an opportune moment for investors to shift at least a portion of their portfolios to gold.”
There’s strengthening evidence that the 2018 low in gold has formed.
From cover story articles to major Wall Street gurus proclaiming themselves outright bullish on the market, the odds favor higher gold prices ahead.
Gold is the ultimate safe-haven asset. It’s only a matter of time before it spikes higher again.