Gold Retains its Power as a Solid Hedge

Gold is experiencing its share of familiar negative comments these days. We’ve heard them time and again: it doesn’t offer interest, “it just sits there and looks at you” (Warren Buffett), and its price is almost certain to plummet if the dollar keeps soaring. None of these expressions of investor fears are news.
 
The news is that, at least according to a Reuters report, some large Wall Street fund managers are betting against the stock market, and making significant investments in the yellow metal. Fund managers, including IVA, Ridgeworth, and Fidelity, are some of the players who remain bullish on gold in view of the two-year lows of the VIX, the Chicago Board Options (CBOE) index, Wall Street’s most important measure of volatility.
 
Charles de Vaulx, the portfolio manager of the $8 billion IVA Worldwide Fund, has observed that the stock market has remained surprisingly lacking in volatility since the election which propelled the S&P to jump 6.5%.
 
Mr. de Vaulx, as do a number of professionals, feels that President Trump’s sporadic and uncertain actions have the potential to derail the stock market. If he’s correct about this, gold will serve as a solid hedge.
 
Also, because the President is close to the vest about his spending plans and because he utters or tweets negative comments about the currencies of other countries, the upward course of the dollar could easily reverse.
 
In his January 17th letter to investors, noted hedge manager David Einhorn blatantly projected Trump’s negative effects on the market: “Our sense is that Mr. Trump doesn’t hold any core policy beliefs and is apt to change his mind as he sees fit ….This will lead to more political and economic uncertainty and less stability.”
 
As gold stalwartly holds to a price above its $1,200 per ounce support level, it seems that Einhorn’s and de Vaulx’s sentiments are shared by a number of investment managers. Gold rose 1.6% to $1,214.19, Wednesday February 1st, on uncertainty about Trump’s policies, and reached a high on Thursday of $1,225.00. Two days ago, the dollar was off to its worst start in more than a decade, gold is potentially a solid hedge this year.
 
Gold’s upward price persistence is especially remarkable when you consider the Fed has announced three rate hikes for this year. Fund managers are much too concerned about the uncertainty associated with the new President’s policies to let up on the benefits of a gold hedge.
 
Ramin Arani, a co-portfolio manager of the $25 billion Fidelity Puritan fund, said, given current political risks, gold provides appealing insurance for his stock exposure.
 
He commented that “In terms of unpredictability, there is a tail risk with this administration that did not exist with the prior…. “There is a small but present possibility that government action is going to lead to unintended consequences.”
 
There you have it. If professionals look upon gold as a hedge against equity exposure in uncertain times, wouldn’t it pay you do the same for your nest egg?
 
Request more information today or call 800-777-6177 now, and ask to speak to a Fortress Gold Group representative.

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