Opinion

Safeguarding As The ‘Fear Index’ Surges

Anna Massoglia Policy Researcher
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Amidst the turbulence of an unpredictable political climate, the potential consequences for the economy are undeniable. A surge in the VIX or “fear index”—Wall Street’s gauge of fear in the market—has continued to accelerate over the last week, indicating more volatility to come. Whether Hillary Clinton, Donald Trump, or someone else entirely emerges as the next president of the United States, the uncertainty around the election itself and the looming threat of more instability yet to come could be potentially far-reaching.

As investors search for safer assets, lingering turbulence of these macroeconomic factors alone may justify strategic gold allocations. Growing concerns over the global economy and the Federal Reserve’s stance to maintain steady interest rates on top of already erratic post-Brexit equity markets bolsters this “safe haven” appeal of gold.

The yellow metal generally booms when confidence in governments is low. During times of turmoil or economic stress, gold has historically provided defensive benefits because it retains value not only in times of financial instability, but in times of geopolitical uncertainty. Gold’s reputation for long-term sustainability—even through tumultuous times—has earned it the nickname the “crisis commodity” because many rely on gold’s relative safety when tensions run high as it often outperforms other investments.

The Official Monetary and Financial Institutions Forum recently reported that central banks have boosted their gold stocks by nearly 10% since the financial crisis, reflecting the renewed attractiveness of gold as a safe haven in an environment of uncertainty and low or negative interest rates. Together, central banks have bought a whopping 2,800 tons of gold.

According to the World Gold Council, demand for gold jumped 15% in the second quarter of this year as purchases by exchange-traded funds added to central bank purchases. In fact, the gold price posted the strongest first half-yearly performance in more than thirty-five years. Unlike paper currency or other assets, gold has maintained its value throughout the ages.

The first half of 2016 was the best on record with total gold demand rising 18% to 233.5.5 tons. In the first half of 2016, gold has been the top performing asset—surpassing major equity and commodity indices as well as investment grade and high yield bonds.

The current dip in gold presents a unique window for buying opportunity.

According to a UBS analysis, gold is set for a comeback six to 12 months from now so long as the Federal Reserve sees no reason to abruptly raise interest rates. Investors seeking the most value would be wise to invest in gold before that limited window closes.

Capital should be carefully and diligently placed in various different pots through a diversified investment strategy to protect it from unpredictable events. Many experts recommend that gold should play part in that. Gold investments can take many different forms, each with their own unique advantages. Even the most circumspect investors may find relief in the tangible nature of gold coins that can be physically held in their own two hands.

Amid the instability of the shifting landscape, gold is one way to take investments into your own hands so it can be passed on and preserved from one generation to the next. A positive outlook for the industry reinforced by expectations that gold will continue to rise no matter who is elected makes a strong case for gold investment as a part of a diversified portfolio. There are no failsafe strategies, but investing in gold is one way to add an air of stability to an otherwise uncertain world.

Anna Massoglia is a public policy professional, researcher, and writer based in Washington, D.C.

The opinions in this article are provided solely for informational purposes and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.