The recent tariffs placed on China by the US signal a potential trade war, and that pushes investors to buy gold. Historically, gold is shown as a go-to safe haven when local and international events cause economic uncertainty.
In fact, after the President’s recent tariff increase of $200b on Chinese imports, exchange-traded gold contracts rose. Investors are taking an aggressive approach while the market fluctuates, and gold prices remain acceptable.
The 2019 market has indicated heightened optimism, but a possible trade war raises a red flag. While a viable trade agreement with China would lead to more fair and just process for the US, investors and politicians alike tend to respond with angst as these dealings can lead to economic woes or a global growth slowdown.
When To Invest in Gold
A crisis such as a trade war actually has a positive impact on gold. Even so, that positive impact rapidly changes as more investors get on board with this safe haven metal and cause prices to jump.
An impending slowdown is often the best time to diversify your portfolio and hedge with gold. A dip in the stock market drives investors to take action even though the standard rule says, “don’t sell during downturns,” according to Suze Orman and many other investment strategists. A safe investment strategy during a downturn is simply to diversify, and gold is currently an appealing option.
What Countries Are Holding Gold?
Whether or not the US can avoid a trade war with China, analysts predict increasing gold prices. Bear in mind, China holds one of the largest supplies of gold. The Lovemoney.com site states, “China has 1,885.5 tonnes (metric tons) of gold in its reserves. It is also the world’s biggest gold producer, ahead of Australia and Russia, and the local demand for gold has been boosted by the burgeoning wealth of its growing middle class.”
The US has the most gold among all of the countries. “The United States of America is the country with the most gold in the world. It has 8,133.5 tonnes (metric tons) of gold bullion. That’s nearly as much as Germany, the IMF and Italy combined,” also according to Lovemoney.com. Italy, France, Russia and Switzerland also have gold in the thousands of metric tons.
A Lower Risk Investment—Gold
Since gold is said to remain strong even in the midst of a trade war, US investors must stay focused on the US national economy. While the US economy could slow, the position of worldwide countries is generally slower.
Should we see slower global growth throughout the year, regardless of a suitable trade agreement between the US and China, equities are projected to decline. This would make lower risk investments such as gold more desirable for investors.
The increase in central bank gold purchases is another key indication that gold is a hot commodity. They are purchasing precious metals at a faster rate than ever over the last 50 years. Not only that, gold volumes have increased more in the last year than since 1971, when the gold standard was dissolved.
As the central banks purchase more and more gold, they are driving smaller investors to diversify their financial portfolios with gold—a desirable lower risk investment to align with economical concerns.
Gold Purchases a Continuing Trend for Emerging Markets
International government banks will purchase precious metals no matter what the price, and they are increasing their supplies in emerging market economies to protect their own countries. With trade agreements in jeopardy, what better time for banks to buy gold? But this should concern small and large US investors.
As emerging markets snatch up gold, it is a critical time for the US to accumulate gold and individuals investors to diversify and hedge with gold. Central bank purchases are driving US investors, and the outlook for gold continues to spike.
Gold As Financial Insurance
Gold is often seen as a financial insurance to combat inflation or a potential disaster such as a trade war. Bankrate.com author and savvy investor, Drew Housman, wrote an article entitled, “The best personal investment decision I ever made was investing in gold — here’s why.” In his article, he makes several common sense claims about gold:
- Gold retains its value
- No other currency can match the staying power of gold
- Gold performs well under many economic conditions
- Gold buys a balanced portfolio
Housman said that he put 20% of his assets in gold after he made a poor decision in 2011 to pull out of stock market. He lost money. He then sought a more stable portfolio that included gold in order to handle a future volatile market situation. He believes the purchasing power of gold to be consistent throughout history.
What better financial insurance than gold—and now is the time to consider a gold-backed IRA or financial portfolio adjustment to include a percentage of gold. If a trade war breaks out, this safety net can secure your assets to withstand a downturn.
Financial Protection In The Case of a Crisis
Since the 2008 financial crisis, banks have been preparing for the financial risks of yet another crisis. They have fixed interest rates, issued credit, produced money, and supplied borrowers. While these actions may seem to be to the advantage of the people, they in fact trigger a false sense of security. The Dodd-Frank Wall Street Reform and Consumer Protection whereby the bank is now protected by your funds is a good example (see article).
As we prepare for any financial crisis including the results of an unwanted trade war, we as small or large investors must protect our assets. Financial protection begins with adding gold to your investment portfolio. Investing in this beautiful metal has two key advantages:
- Purchasing gold to include in your investment portfolio gives you an asset that may not be degraded by the monetary policies of the central banks.
- A gold investment does not involve the same risks as a paper currency deposit, especially in the case of an economical downturn.
Right now, gold is performing well. It is relatively inexpensive, resalable, and a reliable hedge against market fluctuations. Make gold a part of your investment portfolio today, and protect your future for tomorrow. While we do not want a trade war, gold is an asset that stands up against the worst crises.