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Gold: Your Lifeboat as Markets Sink

Both gold and silver held tough last week as the new year’s bear market continued to pummel stock investors. In a week where oil plunged over 11% and the S&P 500 was down 2%, gold and silver finished down less than 1%.

In this new year, the diversification value of owning gold couldn’t be clearer.

Gold is up over 3% in 2016, compared to a 10% loss in the Nasdaq and an 8% drop for the S&P 500. Oil prices are down over 22% in 2016 to just over $29 a barrel.

ECONOMIC SLUMP LEADS INVESTORS TO GOLD

Investors are reacting to glum economic indicators everywhere: economically-sensitive companies like Intel and CSX Corp. are reporting declining sales and weak 2016 guidance. Furthermore, cyclical sectors such as transports, small-caps and energy have all fallen over 20% from recent peaks, sledding down into clear bear market territory.

With evidence of gold’s diversifying power looking undeniable, we’re seeing some heavy hitters weigh in favor of gold in 2016.

Mark Müller and Michael Riesner, analysts at UBS Technical Research, recently issued a research note titled “The 7-Year Cycle in Equities is Rolling Over… Buy Gold!” arguing that 2016 forms the “basis for the next multi-year bull market” in gold. They see gold as attractive in the near term as a “safe haven” asset and having potential for years of price appreciation starting in 2017.

FOLLOW THE BILLIONAIRES: GOLD IS GOOD

Big money continues to put cash to work in gold. A recent article named three billionaires who are strong believers in the role of precious metals in a well-balanced portfolio:

John Paulson believes that gold is essential as a portfolio diversifier and as insurance against the unexpected.
Ray Dalio said: “If you don’t own gold, you know neither history nor economics.”
Stanley Druckenmiller has revealed that approximately 7.5% of his $4 billion fortune is invested in the gold market.

HAS GOLD SUPPLY PEAKED?

Mine supply forecasts look tight: analysts expect gold production to decline by roughly 3% in 2016.

In a recent Mining.com article, the CEO of Barrick, a major gold miner, states that deposits today are now harder to find, take longer to develop, and are, on average, of a lower grade (meaning it is more expensive to extract and refine the gold).

While there are many forces that act upon gold prices every day, it isn’t hard to see why an increasing shortage of new metal supply could put upper pressure on prices in the years ahead.

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