Gold and Economic Volatility

In times of economic volatility, interest in gold and silver tends to increase. History has shown that the worth of paper currencies diminishes when worldwide economies and markets are unstable. Conversely, the price of gold and silver has historically increased during times of market volatility. Prominent experts often recommend gold as part of a diversified portfolio.

The World Gold Council states, “one of the most important contributions gold brings to a portfolio relates to risk management. Not only does gold help preserve capital over the long run, but it smooths the bumpy rides investments may face over the course of time. This includes portfolio volatility, but also goes beyond that. Gold is a very well-rounded hedge against multiple sorts of risk. It helps reduce volatility, minimize extreme losses and enhance liquidity.” (Why invest in gold? Gold’s role in long-term strategies.” (The World Gold Council, "Gold Investor: Risk management and capital preservation", Volume 4, October 2013)

John Hummel, president and chief investment officer at AIS Group, predicts a resumption of the bull market and new record highs for gold: “The basic reasons why gold has gone up in the last decade are still very much in place and we’ll see new all-time highs in this bull market next year.” (“Tapering Key for Gold: Commodities in 2014,” Wall Street Journal, 12/10/13)

Veteran investor, newsletter writer and publisher of the Dow Theory Letters, Richard Russell, told his readers why they need to own gold: “Never buy gold for a profit, gold is a measure of wealth. Count your gold holdings in the number of ounces, not the current worth in dollars. You don’t price the home you live in every day, or with each passing week. Nor should you price your gold holdings in dollars with each passing day. Gold is a timeless wealth asset; an asset that will have a value with the passing of time…In investing, nothing is permanent except gold. But remember, do not buy gold with the idea of making a profit. Buy gold because it is pure wealth, and may be the last man standing.” (“Richard’s Remarks,” Dow Theory Letters, 11/25/13)

Financial expert and host of CNBC’s Mad Money, Jim Cramer, reaffirmed his view that gold is a critical component of a balanced portfolio: “…I still think it's worth having some gold exposure in your portfolio…if only as a kind of insurance against inflation and economic catastrophe."  (Cramer: “Golden opportunity in gold miner?”, CNBC, 11/25/13)

In the last decade the value of the U.S. dollar has diminished dramatically, while the price of gold has increased 300 percent.[1] 

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  1. Historical Gold Chart – London PM Fix January 2000-December 2013


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