Gold News

2018: The Wrong Lesson on Gold Investing

Gold investing can wait 'til the crash. Right...?
 
SO EVERYONE thinks the stock market is about to pull back or even crash, but no one is doing a damn thing about it, writes Adrian Ash at BullionVault.
 
"Many clients we meet are fully invested bears," reports ever-bearish strategist Albert Edwards at SocGen, "nervously looking over their shoulder for signals of the next 'Great Unwind'.
 
"Fund managers think that stocks are overvalued," adds Business Insider, summarizing December's industry survey from Bank of America Merrill Lynch, "[yet] they continue to double down on stocks."
 
But why worry? Most asset managers working today lived through or worked in finance during the global financial crisis of a decade ago.
 
So they no doubt recall what worked then to rescue equity portfolios smashed by the banking crash.
 
Gold just kept on paying, no matter how late into the crisis you bought.
 
Table of US asset-class annual returns, 5 years from 2007 to 2011. Source: BullionVault
 
Watch your house catch fire, then buy insurance? Hey, it worked last time.
 
But as a rule to live by, that offers a very poor lesson.
 
And if you're expecting more of a Black Monday 1987-style slump in shares this year, you will want to be selling gold when stocks crash. Not buying.
 
Chart of gold prices vs. the US stockmarket's Nasdaq Composite, 1985-1990. Source: St.Louis Fed
 
So which is it for equities? Multi-year slump and recession...or short, sharp correction?
 
That's Part One of the question for gold investing at the start of 2018. Because as ever, the price of gold is all about what happens to other investments.
 
The metal itself won't change. Hell, the stuff does so little, it won't even rust. So to judge how much gold you need this year (or how little), you need instead to ask:
 
  1. Will global stock markets in 2018 stop going up?
  2. If so, how big will that drop prove?
  3. How will central banks respond?
Park any risks from geopolitics, mining supply or Asian consumer demand for the time being.
 
The only sure thing in 2018 is that the equity bull market will become the longest in US history if it gets to the end of the year.
 
So if a lull in equities before December turns into a slump, into a crash or into an all-out bear market, will the Fed blink or find religion?
 
Because the only thing that really counts for 2018 gold investing, alongside the outlook for equities, is what central banks do.
 
Tighter policy than pundits and traders expect should, all things equal, put a dent in any gold bull market. Looser policy than people forecast, in contrast, will only make gold more appealing.
 
This year's rally so far says weaker policy might be coming. The fact gold is rallying alongside fresh all-time stock market highs says that at least a few money managers are buying bullion as a precaution ahead of the equity drop everyone sees coming.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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