By Mike Fuljenz
The September 24, 2018, edition of Barron’s features a cover article, “Rediscovering Gold,” which features a line drawing of a lone Western cowboy pausing before a stack of gold bullion bars with a purple sunset in the background. The cover subtitle is “Why the out-of-favor metal should be part of your investment portfolio.” The long article inside, by Andrew Bary, is titled, “Gold Can Start to Shine Again: Why investors should consider shifting part of their portfolio to the metal and mining shares.”
The article makes the same points that I have been making in my COINage column – that now is a good time to take profits from the stock market and put them into gold. But the article adds a few new, notable nuggets:
• The main reason gold has declined in 2018 is a rising U.S. dollar. Investors are attracted to the dollar due to its relatively high returns (vs. the euro or yen). Once the Fed stops raising rates, however, the dollar could retreat. Historically, gold and the dollar have a negative correlation of 80% to 85%. The dollar has been energized by expectations that the Fed will keep raising rates.
• Jeffrey Gundlach, the “Bond King” and CEO of DoubleLine Capital, the big bond-oriented investment firm, said: “In my June webcast, I recommended that gold bugs wait until $1,200 to buy,” because it had just broken below a chart point at $1,290 back then. Gundlach turned positive early in September, when gold hit $1,196. Based on the technicals, he just told Barron’s: “I am now bullish.”
• Barron’s added: “Gold has been a traditional hedge against financial and economic crises, playing that role during the 2008-09 meltdown. Gold rallied 17% from the collapse of Lehman Brothers on Sept. 15, 2008, until the stock market bottomed on March 9, 2009 – a period during which the S&P 500 fell more than 40%. Cryptocurrencies have lately been touted as taking over gold’s role in a crisis. But a 55% drop in Bitcoin this year to about $6,700, and slumps in other cryptocurrencies, have taken the shine off that market. And there is still no easy way to get exposure to Bitcoin.”
• “In the futures markets, speculators, who are normally long gold, are now in the rare position of being net short. Many analysts view speculative positions as a contrary indicator and the current situation as bullish.” Another contrarian sign: “In July, Vanguard announced that the $1.8 billion Vanguard Precious Metals & Mining fund (VGPMX), the largest gold-oriented U.S. mutual fund, would be renamed Vanguard Global Capital Cycles later this month and that its precious-metal mining exposure would be reduced in favor of other commodity-related industries and global infrastructure, such as telecommunications.
Gold and precious-metals mining stocks will make up at least 25% of the fund. Gold bulls see the action as a sign of capitulation. Vanguard’s move in 2001 to take ‘gold’ out of the fund name and broaden its mandate coincided with a bottom at about $255 an ounce.”
Barron’s concludes: “U.S. stocks are at record levels exactly at a time when global stress – trade tensions, populist nationalism, and the like – appears to be growing. This may be an opportune moment for investors to shift at least a portion of their portfolios to gold.”
Remember, I said it in COINage first: Buy gold!