Are You Prepared for These Potentially Disruptive Economic Storms?
The comments above & below is an edited and abridged synopsis of an article by Frank Holmes
Some potentially disruptive economic storms lie ahead, including the possibility of a contentious battle in Congress next month over the budget and debt ceiling.
Meanwhile, central bankers from all over the globe visited Jackson Hole to discuss monetary policy, specifically the Fed’s unwinding of its $4.5 trillion balance sheet and the ECB’s ongoing QE) program.
Some believe that gold is knocked down every year before the annual summit so the government can look good. In most years going back to 2010, the metal did fall in the days prior to the summit. Gold fell most sharply around this time in 2011 before rocketing back up to its all-time high of more than $1,900 an ounce.
Many economic and political conditions that helped gold reach that level in 2011 are in effect today. That year, a similar Congressional skirmish over the debt ceiling led to Standard & Poor’s decision to lower the US credit rating, which battered the US dollar. The dollar’s recent weakness is similarly supporting gold prices.
Several big-name investors have added to their gold weighting in recent days on heightened political risk. That includes Congress’s possible failure to raise the debt ceiling and, consequently, a government shutdown. Protection in that case would be as much as a 10% weighting in gold.
The dollar has suffered from a steady decline; however, a weak dollar is good for America’s economy. It is good for the country’s export trade of quality industrial products and for commodities, which we see in a rising gold price and (usually) energy prices.
There will always be disruptions in the market, and portfolio adjustments will sometimes need to be made. The Oxford Club’s Alex Green recommends a portfolio mix that has beaten the market for 16 years: not only domestic equities, Treasuries and bonds, but also 30% in foreign stocks and as much as 10% in real estate and gold.