Gold has always been the topic of some debate between finance professionals. However, in my personal opinion, gold is and always has been a great safe haven. What we’ve seen over the past month in the price of gold points to several major issues around the world. It also points to why you may want to strongly consider diversifying your portfolio with precious metals as soon as possible. Here are 5 reasons why including gold in your portfolio right now is a great move.
Low Oil Prices Hurt Everyone!
While low oil prices are great when you’re filling up your gas tank, they’re not necessarily a good thing for the jobs, corporate gains, or even foreign trade. As the price of oil continues to fall producing the commodity is becoming more expensive than the price to buy it in many regions. Therefore, oil production slows and jobs are lost. Too much of this trend could have severe economic penalties and will definitely cause downtrends in the stock market.
As a result of the devastating financial effects low oil prices have on economies, the stock market is becoming more volatile as investors look for safe havens for their dollars. One of the most popular safe haven investments… you guessed it! It’s gold!
Economic Instability Around The World
The ECB has announced a major quantitative easing plan for the 19 member euro zone. The plan includes purchasing private and public sector debt to the tune of 60 billion euros (about $69 billion) per month! While most people who pay attention to economic activity around the world expected quantitative easing, no one expected the amount of money used to purchase debt to be so large.
The massive quantitative easing plan set forth by the ECB has sparked concern in investors’ minds at the very least. For many it has opened their eyes to the fact that there are economic struggles still present around the world; once again leading to market volatility and more demand for safe haven investments.
Poor Corporate Earnings And 2015 Outlook
On Tuesday, the Dow Jones Industrial Average, NASDAQ, and S&P 500 all closed with incredible losses. So, what started the sell-off? Poor corporate earning reports! Microsoft lost nearly 10% as momentum in sales of Windows and the Office Suite to big businesses showed a slowing trend. Also, the world’s largest producer of consumer products, Procter & Gamble reported a more than 30% reduction in quarterly net profit. They say that lack of international demand due to the strong dollar and poor conditions around the glob are causing the losses. Unfortunately, there was no good news to be found in today’s quarterly reports.
If today proves to carve the path most major quarterly reports are going down this quarter, we can only expect more drops in the market and more investors looking for a safe haven.
While the major news stations have dialed down on their coverage of this particular issue, geopolitical instability is still a problem and investors who do their research know it. With the new problems that arise as cyber-threats become a more of an issue along with increased terrorist activity and more the geopolitical climate is far from calm.
As geopolitical tensions grow, they pose a threat to several markets and entire economies. As a result, we tend to see downtrends in the stock market and growth in gold.
Stock Valuations Are Way Too High
Lets imagine for just one moment that every other issue mentioned here automatically disappeared and all we had to worry about was stock valuations. Well, that’s enough to cause a sell-off in and of itself. The reality is that over the past several years, we’ve been enjoying the bull market; taking the easy money as it’s available. While the growth was fun, we haven’t seen a market correction in quite some time. So, stock values have grown unchecked for years! As a result, we now have companies like Amazon who have shown nothing but losses over the past decade, but for some reason, their stock prices have risen by 600%. Regardless of anything else mentioned in this post, corporate earnings simply aren’t enough to sustain stock growth as it is today; a correction needs to happen for healthy market conditions.
Gold Is On The Rise… For A Reason
Every sign mentioned above is a red flag of a market correction that is soon to come; and some investors are aware of it. There’s a reason we’ve seen volatility in the stock market lately and a 5 reasons gold has been on the rise. The good news is that we’re seeing this early on in the trend. So, there’s still an opportunity for those who haven’t noticed the movement to get in on the gains.