To say last week was volatile would be quite the understatement. Fears of the impact of the coronavirus, as well as the Fed’s 50-basis-point rate cut, pushed and pulled the markets violently. But as global macro specialist, Eric Fry, tells us below, there was one clear winner from the volatility. It just so happens to be an asset renowned for wealth preservation. But that’s not the whole story. The U.S. Dollar is also making a move. What is it, and how might you position yourself? For that answer, let’s turn to Eric. You see, two investment trends have been picking up steam recently. In today’s Digest, let’s find out what they are, and how you might play them. Enjoy, Jeff Remsburg

 

How to Insure Your Wealth During Historic Turbulence

By Eric Fry

Well, that didn’t take long …

In Monday’s InvestorPlace Digest, my colleagues predicted an interest rate cut was headed our way. We didn’t have to wait long for that prediction to come to pass.

Tuesday morning, the Federal Reserve slashed its benchmark lending rate by nearly a third — from 1.75% to 1.25% … and the gold market soared on the news.

The Fed justified its emergency rate cut as a tonic against the “evolving risks to economic activity” that the coronavirus epidemic is causing. Only time will tell if the rate cut helps to stabilize economic activity and revive the stock market.

But there was one clear winner from Tuesday’s rate cut.

Not only that, but these assets have been the biggest winners in the current market environment.

They’ve been bounding higher since the middle of last year.

They soared even higher once the coronavirus started making trouble earlier this year.

They leaped higher yet again on the rate-cut news.

And they continue to hold their gains.

In today’s report, I’ll show you what these assets are …

And how you can get in on them.

The Anti-Dollar’s Time to Shine

Aggressive rate cuts tend to undermine the dollar’s value and boost gold and silver prices.

That’s exactly what we saw Tuesday: Precious metals way up … the U.S. dollar way down. In fact, we saw gold post its largest one-day percentage gain since last June.

I expect both of these trends to “get legs” over the coming weeks. Here’s why …

For six long years, from May 2013 to May 2019, gold traded in a narrow $350 price range between $1,050 and $1,400 an ounce. On a net basis, the gold price fell 6% during that time frame.

But then, just about the time that most investors were expecting gold to continue its do-nothing pattern, the yellow metal started racing higher. Since last May, the gold price has jumped 30%.

That rally has produced some impressive gains for the easiest way for everyday investors to get in on gold. That’s the SPDR Gold Shares ETF (GLD), which is up 24% since last May.

And it’s been even better for the two gold-focused recommendations I’ve made in Fry’s Investment Report. One has advanced 39% since last May, while the other has more than doubled.

But I’m expecting even larger gains ahead from these stocks, as the budding bull market in gold carries its price to new all-time highs.

A weakening dollar will provide a lot of fuel for this move. Dollar weakness benefits all commodities to some extent. But no commodity on Earth prospers more from a feeble greenback than gold.

Gold is the ultimate “anti-dollar.” It represents everything the dollar is not. Gold salutes no flag, answers to no central bank, and suffers no fragility from borrowing-and-spending politicians.

Gold is simply money … just as it has been for thousands of years.

Admittedly, younger generations of investors may not trust this form of money as much as cryptocurrencies. Nevertheless, billions of people worldwide still covet the stuff.

Until that changes, I’ll consider gold a form of money that competes with the U.S. dollar. Most of the time, this competition amounts to little more than a friendly game of hopscotch.

But during periods of crisis or significant dollar weakness, this competition can become as serious and decisive as a “game” of Russian roulette.

The dollar has been relatively stable and strong since the 2008 crisis. So it is easy to forget that the Dollar Index price chart is not always as placid and serene as an alpine lake.

Sometimes it is as tempestuous as a series of rogue waves — like the stretch from 2002 to 2008, when its value plummeted by more than 40%.

Not coincidentally, the gold price soared nearly 300% during that time frame.

These wildly divergent trends illustrate another fact we sometimes forget: Once a financial trend is set in motion, it tends to gain momentum and stay in motion.

In other words, dollar weakness begets additional dollar weakness … at which point investors start paying attention to negative data points they were happy to ignore when the dollar was strong.

Our national indebtedness is one prominent example …

 

The Dollar’s Loss Is Gold’s Gain

U.S. federal finances have been heading in an unhealthy direction for many years. And yet, the dollar has strengthened anyway.

But if a new dollar downtrend were to get underway, investors might begin paying attention once again to our debt trend.

The U.S. government’s debt recently topped $23.4 trillion — a stunningly large sum equal to 108% of GDP. But the actual tally of U.S. government debt is more than $121 trillion — equal to nearly 500% of GDP.

That titanic debt load includes so-called “unfunded liabilities” like future Social Security and Medicare payments.

A $23 trillion — or $121 trillion — pile of debt wouldn’t be that troubling if it were shrinking. But it isn’t. Instead, the current administration is amplifying the long-running American habit of spending money it does not have.

The U.S. government ran a $1 trillion deficit in 2019 — the fourth straight year of rising deficits and the first 12-digit deficit since 2012.

And those unfunded liabilities keep growing year after year.

In other words, we “rich Americans” are busy impoverishing ourselves, while many other countries are improving their national balance sheets. Russia and India, for example, have been trimming their debt levels over recent years.

The chart below presents a surprising contrast between the fiscal trends of the United States, Russia, and India.

 

 

To be sure, the United States remains the most prosperous country on the planet, and the dollar remains the globe’s premier currency. But the financial markets price assets based on trend, not on pedigree.

No matter how esteemed the U.S. economy and dollar may be, if U.S. finances are degrading somewhat, global investors will seek to reduce their dollar holdings.

Many of those investors will buy gold.

That’s why I think every intelligent asset allocation strategy must include a commitment to what I call “wealth insurance.”

And it’s why I believe most investors should put a small portion of their capital in gold. That step will go a long way toward protecting you and your family against financial distress.

Historically, gold has tended to move up when stock prices move down.

 

Wealth insurance in the form of gold is one of the six “bear market survival tactics” I discuss in my new book, Bear Market 2020: The Survival Blueprint.

Protecting yourself is your responsibility. No one is going to do it for you.

So I’ve designed Bear Market 2020 to help you prepare for … survive … and thrive when the next crisis hits.

To find out more about it, click here.

Regards,

Eric Fry