November 18, 2010 – Understanding the odd behavior of world markets gets harder every day, and some people are concerned about what it all means for their gold bullion investments. For them it is time to sit back, take a deep breath, and look at the big picture.
One of the reasons we invest in gold is that its value counters that of stocks and therefore levels out returns on the entire portfolio. Since September, however, that has turned completely around and gold has held a tight direct correlation to the movement in stocks. Tuesday's global stock selloff should have pushed gold prices up, but instead commodities in general simply followed suit.
The complexities of an evolving global economy still in its infancy are bound to produce unexpected short term effects. Such effects are also bound to be far more profound on stocks, which have been traded for only a couple of centuries, than they would be on gold, an asset that has been universally valued throughout time.
For example, one would be hard pressed to attribute this year’s resurgence in the stock market to any fundamental improvement in our economy. To the contrary, economic conditions have clearly supported growth in gold. Gold is performing as would be expected and the growth stocks, which were already precariously perched near the peak of the cycle, is likely to have been illusory.
There is little we can do about the short term oddities in today’s markets, but if we put them in perspective of the big picture we see little cause for concern. Gold bullion has grown over 22% so far this year, so an occasional dip is no real problem. And gold bullion investments will continue to protect wealth against real global economic threats that will persist into the foreseeable future.
