Market Uncertainty Creates A Buying Opportunity For Gold
Market Uncertainty Creates A Buying Opportunity For Gold from Safe Haven
From 2000 through 2012, the price of gold increased every year, rising from around $280 an ounce to nearly $1,700. It was an unprecedented run.
Then, in 2013, gold took a nose dive, losing over 27 percent of its value.
It was widely reported that the Swiss National Bank, the former bastion of monetary conservatism, lost $10 billion that year just on its gold holdings.
As you probably know, central banks hold a portion of their reserves in gold. The practice goes back to when central banks actually had to have gold on hand to trade in and out of paper money (or even trade for goods and services).
And central banks still hold reserves in gold today, even though they don’t need it to transact like they used to.
So that begs the question, did the Swiss National Bank actually lose $10 billion? It still had every ounce of gold in its vaults. And gold, after all, is money.
Plus, the SNB wasn’t holding gold to speculate…
Today, central banks hold gold as a hedge against fiat money. These are the guys with their fingers on the printing press… so they know exactly the effect they have on money.
And right now, banks are buying up gold hand over fist. Central banks currently hold 20 percent of all the gold ever mined—33,000 metric tons.
And JPMorgan Chase says they’ll buy another 650 tons this year and next.
Gold is for the I don’t knows.
And right now, there are a LOT of I don’t knows.
Markets have been going crazy over the past few months.
After a record bull run for stocks, we are now seeing massive volatility with the Dow regularly jumping 500+ points in a single day. Just yesterday, the Dow fell a whopping 800 points.
And there’s plenty of reasons for market to be worried today. For one, we’re 10 years in to a raging bull market… and it’ getting long in the tooth.
Plus, the Fed is raising interest rates. And when the price of money gets more expensive, people get a little tighter with it. That means it’s tougher for businesses and individuals to borrow. All things equal, higher rates mean lower prices.
Before last week, Fed Chairman Powell said rates were “well below” where they should be. And the markets reacted negatively.
Then, last week, after seeing how fragile markets were, Powell said rates are “just below” where they should be.
Just that one-word difference sent markets soaring. But the joy was short lived.