Usually, when someone starts beating on gold’s drum, it’s to talk about how gold is a safe-haven asset that could protect your assets even in the event of societal collapse. But I’m not here to preach doom and gloom or predict some unforeseeable catastrophe.
Instead, I’m looking at the current economic landscape and seeing that there are several compelling reasons to invest in gold.
Spoiler alert: None of these reasons involve a survival bunker.
1. Massive Federal Debt and Annual Budget Deficit
The United States is currently looking at more than $35 trillion in government debt and an annual budget deficit of about $2 trillion. That’s “trillion” with a “T.”
Now, I’m not here to blame anyone or get political. The reality is, neither political party has a solid plan to fix the long-term debt situation, and it doesn’t seem as if they’ll develop one anytime soon. The debt just keeps growing, and we’re unlikely to see any meaningful policy that will curb it.
Historically, massive government debt has contributed to currency devaluation. What does that mean for us as investors? Well, the purchasing power of the dollar can take a hit when there’s so much debt, especially when there’s no apparent plan to rein it in.
Gold is often considered a store of value when the value of the currency is under pressure, and so many investors use it to protect against drops in the dollar. Given the current state of the federal debt, it makes sense for us to consider some allocation in gold to hedge against this uncertainty.
Moreover, the broader geopolitical landscape also indicates the advantages of investing in gold. Global tensions and economic rivalries can create uncertainty that affects markets across the board. Gold, however, has a track record of maintaining its value even when other assets falter.
In our interconnected world, events across the globe can impact domestic markets in an instant, making gold’s stability an important part of our risk mitigation strategy. Whether it’s trade disputes, regional conflicts, or shifts in economic alliances, having an allocation to gold offers us a layer of security against the unknown.
2. Lower Interest Rates
Another point that’s worth discussing is interest rates. We’re only at the beginning of a cycle where rates are starting to loosen. For the past few years, we’ve seen interest rates ticking up, but as the economic conditions shift at home and abroad, central banks around the world, including the Federal Reserve, are beginning to cut rates again.
You might think that lower interest rates mean the currency is devaluing slower, which is true. However, historically, when interest rates are low, gold prices have a tendency to rise.
It gets even more interesting when we consider real yields. Real yields are simply the 10-year treasury yield minus inflation. Right now, real yields are below the 2% mark, and gold tends to shine in such environments. According to Ned Davis Research, when real yields are below 2%, gold prices have averaged an annual gain of 8.4% since 1979. Lower interest rates make other income-producing assets, like bonds, less attractive, which encourages some investors to invest in gold as a more favorable store of value.
Even as the Fed begins its monetary loosening policy, the shadow of inflation won’t go away anytime soon. If inflation starts creeping up, investors will get spooked that the Fed may slow the rate cuts and go running to gold. We’re looking at gold as a potential addition to a portfolio before broader market interest increases.
3. Gold Is Near an All-Time High — But No One Is Talking About It
While other narratives like AI tech and defensive rotations dominate the news cycle, the gold story hasn’t received the same love. “Gold does well” is certainly not the attention-grabbing headline many financial publications are after. Yet gold is up about 25% year-to-date as of September, outperforming most other asset classes, and investor sentiment still isn’t anywhere near euphoric.
According to Ned Davis Research, sentiment indicators are reflecting a high neutral level rather than the kind of exuberant optimism you’d expect at these price levels. This is actually a good sign for gold investors. Why? Because extreme optimism often signals a peak; the lack of enthusiasm suggests there might still be some room to run.
4. Portfolio Balance
As if that wasn’t enough to prove gold’s worth, it has historically benefitted from rising stock market volatility. When the stock market becomes choppy, investors often look for safer places to park their money so they can give their adrenals a rest. Gold typically benefits greatly from those investors looking for some predictability. With ever-present global uncertainty and dicey economic conditions, it wouldn’t be surprising to see stock market volatility increase, further bolstering gold’s spot price.
Gold tends to have a low correlation with the performance of traditional asset classes like equities and bonds. So when stocks are under pressure, gold can provide stability. This makes it a valuable component of a diversified portfolio, especially in uncertain times, and it sure is getting hard to remember when times weren’t “uncertain.” We like gold because, by adding it to an investment strategy, investors can potentially reduce overall portfolio risk while still maintaining solid growth prospects.
I’m not saying that you should invest everything in gold as the only answer. However, given the current conditions — massive federal debt, lower interest rates, and a lack of mainstream enthusiasm despite record prices — it makes sense to me that gold would be a reasonable addition to any well-diversified portfolio. Gold has a history of preserving value even in unpredictable markets, and right now, the signs look to be in its favor.
________________________________________
Our mailing address is:
2827 Peachtree Rd NE, Suite #510
Atlanta, GA 30305
(404) 905-2290