#5: Don’t Trust Gold
One last move you’ll want to make to protect yourself is to avoid a particular asset — specifically, don’t buy gold.
Yes, I know the line: “Gold is the one true source of value and the only currency that has withstood the test of time.”
Sure, that sounds good, but it doesn’t square with reality. Gold is a traded commodity; nothing more, nothing less. And the price of gold, like any other commodity, fluctuates with supply and demand.
Well, the factors driving demand for gold in recent years are all in reverse at the moment. As I recently wrote for InvestorPlace, the inflation that everyone seemed to fear would spring from the Fed’s quantitative easing never happened. The most recent CPI reading showed inflation at 1.2%, and energy prices — which rose throughout the 2000s — continue to sag due to the recent flooding of the market with cheap American shale oil and gas.
Quantitative easing is getting tapered, the federal budget deficit is actually shrinking, and the hedge funds and ETFs that were so instrumental in driving gold demand are now seeing outflows. Meanwhile, supply from the world’s mines remains high (at least for now), as production was ramped up during the boom years.
High supply and sagging demand is a recipe for falling gold prices. If you’re a trader, feel free to speculate in gold, long or short. But if you’re an investor looking to hedge, look elsewhere.
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he was long ARCP. Check out his new premium service, Macro Trend Investor, which includes a free copy of his e-book, The New Megatrend Investor: The Ultimate Buy-and-Hold Strategy That Will Make You Rich.