Gold’s Best Quarter Since 1986

No one can say that the first quarter of 2016 has been boring for investors. Just since January we’ve had the slowdown in China, the roller coaster stock market ride and the surge in gold prices, the likes of which we haven’t seen since 1986. This is one of those rare times when several components of your portfolio are doing well all at the same time but, so far this year, gold outshines them all.

Making this gold rally all the sweeter were the naysayers believing that gold prices would retreat to finish the quarter in the red. Despite the gloomy predictions gold prices surged over fifteen percent, thanks largely to a softer tone from the Federal Reserve regarding future interest rate hikes. Added to that is the central bank craziness we’ve seen busting out all over, including the once-inconceivable spread  of negative interest rates in Europe and Japan.

Gold, Stocks Move Higher

This is one of those rare moments when gold, oil and stocks are moving higher together. Much of the surge can be traced back to the Fed’s going soft on interest rate hikes, but not all of it. Gold prices are higher as January reminded investors that putting all your portfolio in stocks is a really bad idea. Gold was also on sale at ridiculously good prices at a time when the global economy was demonstrating that all this financial and national inter-connectedness means sudden reversals can come from strange or unexpected places. That was a learning experience for U.S. investors, who now have to pay daily attention to China and Europe.

Dollar Moves Lower

Gold prices were slightly lower today on profit-taking but weakness in the dollar will act to support gold prices going forward. The dollar’s been overdue for a correction for a long time and a declining greenback will be a boost for both commodity prices, including oil, and corporate profits. A weaker dollar will also make U.S. goods and services more competitive in international markets, which will be a big relief for companies like Boeing and Caterpillar.

Negative Interest Rates

Another strong factor in gold’s favor is the trend toward negative interest rates by central banks. With banks in Europe and Japan already pushing rates into negative territory, investors are rethinking the safety of cash. It used to be that money in the bank was a good thing; today banks are taxing you for it. Gold offers a haven from negative interest rates and the continuing volatility of global markets. While it’s true that gold is not a growth product, investors can count on it to maintain relative value to the buying power of currency. As a means to preserve wealth gold is unmatched as a liquid hard asset and the behavior of central banks will cement the precious metal as a fixture in portfolios going forward.

No Safe Harbors

Negative interest rates are “two-fer” for gold prices because government bonds are the traditional safe haven from turbulent markets. That central banks are even considering negative interest rates, let alone actually implementing them, takes one of those “safe” alternatives to volatile markets off the table. There’s also the impression among investors that central banks are run by crazy people and can’t be trusted. Confidence in financial markets is a fragile thing and, once it’s gone, will take a long time to rebuild.

All of this is great news for gold and seems to paint a very solid future for prices. There are very few safe places to store wealth in the current global economy and gold will benefit from that scarcity. Aside from the current conditions, it’s always been a good idea to keep a fixed percentage of your wealth in a liquid hard asset, especially retirement portfolios. That part of your wealth will maintain needed relative value to currency, no matter what crazy games increasingly interventionist central banks start playing with your currency.