Risk and control of it is perhaps the single most important theme for investment success. Without risk, there can be no reward. On the other hand, too much risk can easily wipe out any gains-and more-sending the investor back to square or worse.
Like any other issue, risk should also be kept in the proper perspective. Given all of the recent coverage of rising interest rates, it seemed like a prudent time to talk a bit about rate risk as it pertains to gold.
It has often been said that rising rates pose a significant risk to hard assets like gold, as gold pays no dividends and therefore may present and opportunity cost to hold it. Although some of this argument may make sense, it is important to keep current rate levels and the possible trajectory of higher rates in perspective.
Interest rates remain at extremely low levels, in fact, despite rising rates, real interest rates are very low. The Fed has also already put forth the notion that rates are not likely to reach levels seen in previous tightening cycles, and the fact is that rates could remain depressed for years and even decades. Although the global economy has recovered a great deal, it is not able to handle significantly higher rates. The Fed seems to know this, and that is why it has been very careful and calculating in regards to monetary policy.
Now consider this for a moment: The U.S. 30 year bond is currently yielding a whopping 2.87 percent. How risky might it be to hold such a bond if rates do continue to rise in the years ahead, keeping in mind that as yields rise prices fall. Investors in such long-dated debt could potentially get smoked.
Is gold likely to fall below key support around the $1200 level any time soon? Are all of the global debt issues, geopolitical tensions and the potential for the most massive stock market collapse in history likely to just go away any time soon? Probably not.
Now, if rates were to eventually fall again, bond investors may be sitting pretty as bond prices could go up. Any such gains, however, would be limited to just how low rates can possibly go. The gold market, on the other hand, could see a potentially unlimited amount of upside based on lower rates as well as a variety of other issues such as a stock bear market or weaker dollar.
While both investments carry risks, and any investment can potentially decline or appreciate in value, which one do you think can provide more potential upside? Not only that, but which investment may also potentially provide a meaningful hedge against weaker paper currencies, geopolitical issues or inflation?
Bonds carry the risk of loss as does gold. But thinking this through, which investment do you think can potentially provide a greater long-term value, potential for price appreciation and act as an insulator from all of the potential issues that can have a significant impact on your portfolio?
If you think it’s gold, now may be a great time to start an allocation in this asset class, and doing so has never been easier than it is today.
Speak with an Advantage Gold account executive today about the potential benefits of gold ownership. Our account executives are here to answer any questions you may have, and can even show you how to buy and hold this key asset class using your IRA account.
Don’t wait for the next major stock market collapse or recession before taking action. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started today.Tags: advantage gold, Fed, gold, interest rates, opportunity cost, RISK, tightening cycle