Deepening political and financial unrest in UK coupled with record low bond yields have driven gold prices to new highs. We have seen flight to gold in the past but most often it was because of a weak stock market. This time around, despite the Dow hitting record highs, we are still seeing fresh capital flows into gold. The reasons for investors fleeing to safety in gold is a reflection of a sentiment that global economy may be deteriorating – consequences of Brexit, rash of violence in the US, China stalling and coup in Turkey are all weighing on investors, in our opinion.
This bring us to the US markets. In a previous previous blog, we had recommended staying away from international markets. With the Republican convention getting underway amidst heavy security in Cleveland this week, we remain bullish on US markets. Traditionally, election years have been positive for the stock market although we expect the volatility to continue as we reach election time later this year. While second quarter corporate earnings have been mixed thus far, we continue to recommend investors look at dividend paying and value stocks in the US market for remainder of the year.
But why take a pass on gold?
Any rise in interest rates will boost the dollar making gold more expensive which will in turn drag the price down. With inherently no value other than what investors assign to it, we prefer investing in companies with strong cash flows and sound value propositions instead. Furthermore, given the cyclicality of gold prices – price of gold now is where it was in April 2013 and same levels as in late 2010, we do not see gold as a long term holding for investors. Attempting to take safety in gold now is pure speculation, in our view.
Bottom Line: Stay away from gold.
CEO, Future Wealth LLC
Phone: (408) 839-4430
Future Wealth , LLC is a registered investment adviser offering advisory services in the State of California and in other jurisdictions where exempted.
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