U.S. stocks posted modest gains last week as multiple intra-day sell-off attempts were viewed as buying opportunities, and investors took advantage of briefly discounted prices. The Dow and S&P continued their gradual weekly march towards record highs despite a marginal decline on Friday. Many analysts attribute the brief declines in equity prices to profit-taking among investors who have held onto long positions for decades.
“We’re vulnerable to a short-term pullback because a lot of optimism has come into the market in the past week or two,” said Bruce Bittles, chief investment strategist at Robert W. Baird & Co.
There’s no question that optimism is at a record level. In spite of this optimism, however, investors have evidently been hedging their portfolios with gold and silver.
Silver is officially the best-performing asset so far in 2017, with YTD gains of 14.64%. Platinum takes the number 2 spot, with YTD gains of 13.59%. Not too far behind, gold is the seventh best-performing asset this year, with YTD gains of 8.98%.
To put these percentages in perspective, the benchmark index for the United States, the S&P 500, is up approximately 5.43% for the year.
In total, precious metals have dramatically outperformed the broader equity, fixed income, and energy markets, largely to due what is known as a “flight to quality”. Although U.S. stocks have been performing well, this does not negate the volatility and concerns of global stocks, particularly in Europe.
With France’s presidential election looming, along with China’s alleged manipulation of their currency, the yuan, overseas investors have unquestionably been pushing precious-metal prices higher. As a result, when geopolitical risks are combined with lofty stock valuations, the amazing run-ups in gold, silver, and platinum seem fairly reasonable.
Moreover, at a time when the Dow Jones doesn’t decline one iota for ten consecutive days, investors naturally begin to worry that an ominous event is on the horizon; the good times can’t last forever. Or can they?
“Of course we’re not comfortable with valuations, but valuations don’t tell you what direction the uncertainty, the market could be safe until taxes are cut and regulations are withdrawn. Once those happen, the market could be vulnerable.”
So far, every macroeconomic event that has materialized since the start of the year has been bullish for gold – even the possibility of rising interest rates.
Regardless of the reasons for the epic climb in precious metals, the solid gains demonstrate the benefits of a well-balanced and diversified investment portfolio – something we fully stand by at Blanchard.