Gold coin buying turned frenzied in May, as sales of American gold coins skyrocketed by a stunning 433% in May from April, according to U.S. Mint data.

May gold coin sales marked the highest level since 2015, as investors used the lower price levels as an opportunity to increase physical gold ownership, amid a time of rising geopolitical and economic tensions.

In May, the U.S. Mint sold 24,000 ounces of American gold eagle coins, up from 4,500 ounces in April.

• Premiums, or the different between the gold coin and spot gold prices is historically narrow right now, about 1-1.5%. That creates great buying opportunities for investors.

Spot gold prices slid since mid-April, pressured in part by a rising U.S. dollar and an initial jump in the 10-year Treasury yield. However, 10-year rates have slumped sharply in the past few weeks.

3 Reasons Gold May Have Found a Floor

The recent price dip toward the $1,300 an ounce in gold may be bottoming out. Why?

1. Chinese and Indian buyers tend to be “price sensitive,” which means they tend to wait for price retreats to buy. The $1,300 an ounce level in gold is viewed as a good buying opportunity, which should attract physical buying from these two gold hungry nations.
2. The U.S. dollar is expected to fall back, which in turn, should help gold prices recover. One factor that could weigh on the U.S. dollar are the rising concerns over the economic impact of a Trade War, which could derail expectations for a couple more Federal Reserve interest rate hikes in 2018.
3. Increased interest in gold as an inflation hedge.S. inflation data and more importantly future inflation expectations have steadily increased since the start of the year. That increases demand for gold to hedge against the corrosive impact of higher prices on goods and services. Gold typically climbs during periods of rising inflation, which helps to protect purchasing power of one’s assets.

Bottom Line

The swift jump in American Eagle gold coins during May could just be a taste of what’s to come this year.  Professional money managers turn to gold during times of economic uncertainty, crisis and rising inflation. The 2018 run toward gold may just be getting started. Is your portfolio fully protected?

Recently, gold prices have dropped due to fears surrounding political turmoil arising from Italy. Equity markets around the world have followed this same trend. The trouble began on Sunday when the President of Italy, Sergio Mattarella, blocked the appointment of the finance minister. Mattarella remarked that his decision surrounded “The uncertainty over our position in the euro.”

Concerns are growing as this decision marked the 84th day of Italy without a government. Moreover, the country is drowning is debt which now totals 2.1 trillion euros with more added daily. Historically markets have seen gold prices rise in uncertain times as the urge to retreat to “haven” investments increase. However, each scenario is a little different and as Edward Meir, a consultant at INTL FC Stone explains, “The stronger dollar seems to be offsetting the bullish impact coming out of Europe.” Now, the Euro is falling in value. This drop makes U.S.-traded commodities like gold more expensive for international investors. The one haven investment that’s increasing in value is the U.S. Treasury bond.

Trepidation isn’t limited to Italy. Many investors fear trouble in that country could pervade Europe. Meanwhile, sell-off fears are rising as more investors become less confident in the global political leaders of today. Perhaps this diminished trust is why “Gold has been behaving exceptionally well when measured across various major currencies, and it continues to maintain an uptrend against the U.S. dollar as well,” explained one portfolio manager at Sprott Asset Management.  

More voting will likely occur this fall. However, investors aren’t excited about the event. Many fear that the ballots will strengthen the anti-Eurozone mood and ultimately lead to a fracturing of the currency. This outcome would wreak havoc on global financial markets. Equities and many bonds would fall in value as earning potential and confidence in credit worthiness decline.

In such a scenario gold offers a greater likelihood to preserve one’s wealth or even expand it. The problem, however, is more than Italy. Their exit from the Euro would likely precipitate other countries doing the same. Savvy investors might find clues to the future of gold in this scenario with a look to the not-too-distant past.

In the fourth quarter of last year we saw Catalonia’s parliament declare independence. This act was one of defiance in the face of the Spanish government. This event is a useful case study for investors facing Italy’s dilemma because “Catalonia is a small microcosm of the total European situation. But what it represents is the idea of an unstable European Union,” explained Dan Hussey, senior market strategist at RJO Futures in Chicago. Shortly after this move, gold prices increased.   

Seasoned investors understand that the only certainty is uncertainty. Italy and Europe is top-of-mind for many at the moment. While this narrative unfolds, others are almost certainly beginning to take shape and in such early stages of development that we don’t see them. For this reason, gold remains an enduring investment that kicks into gear when you need it to.

Recently the World Gold Council released a long, in-depth report offering a dimensional view of gold’s future of the next 30 years. Industry analysts, experts, and engineers gave their perspective on how our changing world will influence the value, use and availability of gold. Here, we distill their findings to the three most critical takeaways so you can get the next 30 years in just 3 minutes.

How Investment Markets Will Drive Gold Valuations

Rick Lacaille, Executive Vice President and Global Chief Investment Officer at State Street Global Advisors suggests that continued demand for gold in countries like India and China will bode well for the asset. Cultural norms in both countries underpin a belief that gold is a safer, more durable store of value than other products like securities. With so many more people seeking to become gold owners it’s likely that gold-backed products like ETFs, notes, and certificates will grow which in turn should boost gold’s value. For this dynamic to playout, however, citizens will need to gain confidence in financial markets. This confidence can only develop with a strong, stable political environment. If this scenario unfolds it may also reduce the volatility seen in gold and silver over the last three decades.

How Mining Will Influence Availability

Mark Fellows, Head of Mine Supply at Metals Focus explains that while gold production has doubled in the last 30 years, that trend will almost certainly not continue. The basis for this assertion: gold production in recent years has become more dispersed. Historically, production was highly concentrated among the big four,” South Africa, the US, Australia and Canada. Now, the big four represent less than 30% of global production as compared to 60% in the late 1980s. These mines will need to work hard to capture their share of the remaining 55,000 tons of in-ground reserves. At today’s rates that amount represents just 15 more years of production. Fellows, however, also points out that approximately 110,000 tons of gold reside in mineral deposits. Getting to this gold will prove difficult. Currently the labor involved in sourcing this gold makes the prospect too expensive. This picture could change if gold prices ascend high enough in price for the economics to work.    

Technology’s Role in the Gold Market

Dr Trevor Keel, a consultant for the World Gold Council shares research from Brookings which shows that the middle-class population is poised for explosive growth. Asia will be the hub of much of this expansion. This emergence will ignite spending on technology which relies on gold for bonding wires and connector plates. This trend has implications not only for consumer technologies like computers and smart phones, it also involves healthcare technology which depends on the metal. He cites research from WHO showing that as recently as 2016 more than 300 million gold-containing tests were employed to diagnose malaria in Africa and Asia.    Finally, Keel explains how demand for gold will likely grow as clean technologies, namely solar panels, will become more commonplace. Keel explains, “Recent research has even suggested that many major countries could be completely fossil fuel-free by 2050.”   

Volatility is surging back into the equities market with a vengeance. Morgan Stanley recently reported that in the first quarter of this year the S&P 500 moved at least 1% on twenty-three different trading days compared to just eight days throughout all of 2017. Increasing interest rates, fears of a trade war, and an undercurrent of geopolitical concerns are all driving this activity. Lately, gold bullion investors are asking “what’s my place in these turbulent markets?” The answer can be found with a look at history.

CFA Russ Koesterich, writing for BlackRock explains that “historically gold has outperformed equities by an even larger magnitude when volatility is rising from an already elevated level.” The research illustrates a compelling picture for bullion investors. Russ continues, “From 1994 to the present using Bloomberg data, during months when the VIX was already above 20 and rose even further, gold outperformed by an average of nearly 5%, beating the S&P 500 roughly 75% of the time.” These findings make intuitive sense; as volatility rises, so do investors’ trepidations about the future. These concerns, in turn, lead those same investors to seek “haven” assets, namely precious metals.

These concerns, however, are not spurred by volatility stemming from politics and shifting trade dynamics alone. Interest rates have always played a significant role. For example, consider that there were eight years between 1974 and 2008 in which U.S. inflation was more than 5%. In these periods, gold increased in value by 14.9% in real times. As a result, gold outperformed stocks, bonds, and other commodities.

Even over a more recent time horizon of March 1997 to May 2009, gold outperformed several other haven investments. Gold generated an annualized real return of 5.9% while the S&P Commodities Index (GSPI), real estate investment trusts (REITs), and US Treasury Inflation-Protected Securities Index (TIPS) each yielded a lesser annualized real return of -0.2%, -3.8%, and 3.7% respectively. Moreover, volatility was higher for all these other asset classes during the period excluding TIPS.

What do these numbers mean for today’s investor? They illustrate the value of gold as a portfolio hedge not only in times of rising rates or even in times characterized by fears of rising rates. These findings remind us that gold has a place in an investor’s portfolio even when rates are low and expected to remain low.

However, the current economic climate portends a different scenario; rates are on the rise and will continue to climb making gold an even more attractive investment.

These rising rates are just another step in the Fed’s long journey from their days of substantial quantitative easing which echoes the tumultuous years of the great recession. In such an environment gold continues to be an effective diversifier without the volatility which incites anxiety.

Too often we think of an investment in gold as a replacement for equities. Many investors shy away from the asset fearing the opportunity cost associated with equities rise especially over the last several years. In truth, gold offers not only a respectable return; it offers protective features other assets cannot. With more rate increases on the horizon, the time to act is now.