Hurricanes, Earthquakes, Floods and Their Effect on the Price of Gold.
By Dale Gillham, Chief Investment Analyst at Wealth Within
Synoptic charts provide information on the distribution, movement, and patterns of air pressure, rainfall, wind, and temperatures that cause natural disasters like hurricanes and floods. Can you, as an investor, use a synoptic chart to predict the rise and fall of gold prices?
In short, yes!
We measure weather patterns by the rise and fall of extreme temperatures. When a hurricane is forecast we’re told to batten down the hatches, when a flood is imminent we’re told to run for the hills. Then, in our safe place, we wait for the uncertainty to pass.
The price of gold is strongest when uncertainty is highest. Uncertainty in the market stems from a range of international causes including but not limited to; geopolitical tensions, quantitative easing, a weak dollar, financial crises and any natural disaster that results in fear.
Then why is gold a cornerstone of international investment if it’s a defensive measure? During those uncertain times we have two choices, to be defensive by investing in either cash or gold, whereas when interest rates fall in uncertain times, gold is affected less as it is a finite resource.
Aren’t we investing to make money and not just keep it?
The answer put simply, is that when it’s raining you want to be undercover and when it’s sunny you want to go outside and play. Some analysts will tell you that active investing in speculative markets is for sunny days and that when the weather turns dark you should double up on your passive strategies like gold. So one reason to invest in gold is to shore up the profits you’ve made elsewhere in a relatively safe area.
The price of gold tends to be stronger in times of physical, economic and social upheaval. So when investors are uncertain they turn to gold and when natural disasters are forecast to detonate the uncertainty levels skyrocket.
At Wealth Within we believe in diversification to minimise risk in both good and bad times, as you make more money with less risk. We also strategise to ensure our wealth isn’t passively resting.
To learn how to properly diversify your portfolio head over to www.wealthwithin.com.au