Should You Allocate Capital To Gold?

Inflation was dormant for 40 years. Much as the Federal Reserve tried, especially after the financial crisis of 2008, it could not cause inflation.

The Federal Reserve could not even hit its goal of 2% annual inflation.

Well, that has all changed dramatically. The governments of the world have all gone crazy with the covid hysteria and the overreaction and money printing have gone off the rails. But the truth is, this is all just to cover up the fact that all the governments have been borrowing money (stealing) with no intention of ever paying it back.

To cover up their crimes, they have created shortages and inflation, and now they are on to creating was as a distraction.

Not to scare you, but this sounds bad, yes?

Well, there is some good news. Investors that can see all this nonsense that is going on are looking for insurance against the financial system, and they are finding that protection in the shiny yellow metal, gold.

All of these bad things that are currently going on are a catalyst for gold. Gold is rock solid (please excuse the pun). Investors turn to gold in times of uncertainty and in times of crisis. Well, guess what? Those times are here.

What about rising interest rates? That will hurt the price of gold right? Because that is what has always happened in the past, correct? No. Just look. In just two months, interest rates have gone from 3% to 5%. In just two months! A historic rise in interest rates in such a short amount of time.

This must-have caused the price of gold to collapse, or at least decline, right? Again no. The price of gold has remained mostly even and has even risen slightly, in the face of skyrocketing interest rates. This doesn’t make sense to most investors.

Don’t be like most investors. Realize that gold has been valued by humanity for at least 5,000 years. Gold has seen countless panics, depressions, wars, and inflations come and go. One of the many reasons why we value gold is because it is dependable.

In times of great crisis, people always turn to gold. And when this happens the price rises. We are in times of great uncertainty, so even when the interest rates rise at an unprecedented speed, gold remains unfazed. Because of this, nearly all investors need to have at least some of their portfolios allocated to gold and other precious metals. Many investors can see what is going on with the economy and have made a smart decision to move a 401k to gold without a penalty by opening up a gold IRA. Even if you just move a portion of your 401k to gold, you are still getting ahead of the investing crowd.

Let’s review some of the main factors that drive the price of gold.

A weakening currency will push the price of gold higher. Well, all global currencies are weakening. The United States government is doing everything it can to destroy the dollar. They are inventing new ways to print and devalue a currency. Whether this is all being done intentionally or the people making the decisions are bumbling idiots is unknown, and it does not matter. The fact is the abuse of the currencies means that the price of gold will go up.

Inflation and loss of confidence are also key drivers in the rising price of gold. It now takes two to three dollars to buy you what only took one dollar to push as recent as two years ago. That is wild inflation. The average working person is getting crushed by this loss of purchasing power. The reason inflation causes the price of gold to rise is because of fear. If investors don’t buy gold today at $2,000 an ounce, they will have to buy it next month at $2,400 an ounce.

The longer you wait, the more the price you will have to pay, and the less of the product you will get for your dollars. This also impacts investor confidence because they are scared of this. In normal peaceful times, prices don’t move this quickly. When confidence declines the price of gold rises because of FOMO (fear of missing out). Investors worry if they don’t buy today, they will have to pay a lot more soon. They are correct, and this pushes gold higher.

Capital flows, both domestic and internationally, have a huge impact on the price of gold. Capital flows are the main reason why the style of investing called Trend Following works so well. If money (capital) is flowing into an asset, that asset will rise in price. The asset is popular with a lot of investors, and investors are spending money to acquire the asset, then the price goes up. When Trend Following investors see a lot of capital going into an asset like gold, they buy gold too because they know that a rising tide lifts all boats.

The same is also true of capital flows and Trend Following in reverse. If most investors decide that they do not want the asset, then money will flow out of the asset as more and more investors sell the asset. This is unfortunate for you if you are looking to acquire gold at a cheap price point because this is not currently happening in the gold market. Capital flows internationally are going into gold and the price is rising in all currencies, which is the signal of a real bull market because all the governments around the world are all doing the same thing and all going insolvent.

Momentum breeds momentum, as the saying goes, and the momentum is going into gold.

A popular, but much less powerful reason for the price to rise is due to government central banks buying gold as reserves. Don’t believe the hype. It’s popular nonsense by gold promoters to say that a central bank that is in trouble, will buy gold to stay afloat. This just is not true. Central banks hate gold because they can’t just print more of it like they can their currency units. And a central bank will never allow its gold reserves to be audited by an independent third party. So don’t think that because a central bank is buying gold that the price will go up. That is mostly a myth.

Now, some people think that gold will not rally because of cryptocurrencies. Somehow crypto has everyone in a trance and they don’t think that gold works like it used to. Just take a step back and think for yourself. While we don’t hate crypto like many gold investors, we know that crypto is not gold. Gold still has value even if all the power goes out from a cyber attack. If the internet goes down, your crypto goes to zero. Gold has been around for at least 5,000 years and probably longer. It has never gone to zero. There is a place for both gold and crypto in a smart investor’s portfolio. But do not get caught up in the hype that gold has replaced crypto because it is simply not accurate.

Hopefully, we have convinced you that there are many solid, well-thought-out reasons for allocating a portion of your investment portfolio to gold. Some investors will want more exposure, some less, just make sure that you get off a zero allocation. Your retirement depends on it.