Periods of pullback in surging asset classes can present renewed buying opportunities.
Once an asset takes off, those still on the sidelines understandably become reluctant to follow through on a purchase. When the asset takes a bit of a “breather,” however, it can be a good time to jump in and buy during a moment when there appears to be a little more built-in value.
Such pullbacks are not always buying opportunities, however. Before actually making a purchase, it’s important to evaluate the relevant fundamentals – the asset’s underlying influences – to be sure they’re still favorable. If they’re not, then the dip is something you’ll want to look past in favor of doing something else – including doing nothing at all.
We’ve seen such pullbacks recently in both precious metals and equities. After a great April-to-July in which it jumped 30%, gold ran into something of a wall upon the arrival of August. By September, gold had dropped 6%. As for equities, they fell about 7% last month.
In the wake of these drops, financial giant Citigroup made headlines when it decided to pass on the drop in equities and buy the one in gold. In a nutshell, this was Citi’s reasoning: The monetary policy landscape, characterized largely by a great deal of accommodation on the part of the Federal Reserve, still provides a good runway for both assets. However, the current economic and sociopolitical volatility rocking the country is an important consideration, as well. In Citi’s view, this volatility does not lead to the same outcomes for gold and stocks. Citi analysts expect this upheaval will make so-called risk assets even riskier while further improving the prospects for safe havens such as gold.
The relevance of national economic and social discord to the asset landscape is something more Americans would do well to consider, in my opinion. Even just a cursory look at recent headlines and news items suggest we are, in fact, a nation in crisis right now.
As for guidance about how to proceed, Citi is on to something, as I see it. Additionally, it’s worth noting the longstanding posture of the world’s largest hedge fund on both the portfolio threat posed by socioeconomic upheaval and gold’s potential utility in defending against it. The perspective of legendary money manager Bridgewater Associates may provide some reassurance – perhaps even some inspiration – to those retirement savers considering gold as a hedge against widespread strife right now.
America in 2020: Food Lines, Mass Evictions and Riots
Economic and social turmoil in the U.S. has become so profound that it’s well on the way to becoming embedded in the fabric of American society. “Seen for more than 70 years as the politically stable leader of the democratic West, America and its deep social and economic cleavages are being laid bare before the rest of the world,” writes Kevin Drew of U.S. News & World Report.
According to Drew, the tumult has reached a level such that “America is unrecognizable to its allies” now. As dramatic as that statement is, there’s no shortage of news and data validating his assessment:
- The economic recovery from the pandemic already appears to be in big trouble. The Labor Department reported last Friday that nonfarm payrolls increased by 661,000 in September. That would be a solid figure under normal conditions. However, after a four-month period that saw the nation regain 11 million jobs lost at the onset of the pandemic, September’s gain is seen as both disappointing and deeply troubling. “This report is an illusion of progress at a time when we needed accelerating gains in the labor market,” said Nick Bunker, economic research director at job placement site Indeed. “This report is massively concerning. We are not where we need to be, nor are we moving fast enough in the right direction as we head into fall.”
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- According to a new report from Pew Research Center, 56 million Americans – roughly 17% of the country – have had to rely on a food bank during the pandemic. “Once only associated with enemy nations or with the Great Depression, bread lines have returned to the United States,” writes Alan Macleod of Mint Press News in his article on the Pew survey results. On a related note, a recent USA Today article claims “America is suffering its worst hunger crisis in decades.” According to the piece, 14 million of the nation’s children are missing meals regularly. That figure is three times higher than what it was during the financial crisis.
- In its latest Economic Impact Report, Yelp reveals that not only are business closures in the U.S. increasing, but 60% of all closures will be permanent.
- A recent CNBC article says millions of Americans may be unable to pay their rent in October. The article also cites a study by global advisory firm Stout Risius Ross that suggests 34 million Americans are at risk of eviction. According to eviction expert Emily Benfer, “The United States is facing the most severe housing crisis in history.”
- The National Guard has designated military police units in Alabama and Arizona to act in the capacity of “rapid reaction forces” that can immediately deploy anywhere in the country to assist other agencies in quelling civil unrest. Although there has been no official statement indicating this is being done in anticipation of election-related violence, an Associated Press article suggests the move is being made to prepare for just such an eventuality.
If I had asked you before this year to name a country with high unemployment, food lines, mass evictions, rapidly-shuttering businesses and anticipated election-day violence, what are the chances you’d have responded, “The United States”? Probably zero. And yet here we are.
What’s going on right now is proof positive that any country – ANY country – is vulnerable to crisis conditions when the dynamics of economics, governance and sociopolitics cut against it. It also confirms that retirement savers need to be prepared to defend their portfolios against antagonists they may have assumed were irrelevant in 2020 America.
World Largest Hedge Fund: Gold Is Your Protection Against “Boiling Conflict”
Perhaps until this year, you might have seen yourself as being just a touch paranoid for thinking you should protect your portfolio with safe-haven assets. If so, you can take comfort in knowing that Bridgewater Associates – the world’s largest hedge fund – has a long history of both sounding the alarm on the portfolio consequences of widespread turmoil and advocating gold as a way to defend against it.
For example, in January of this year, Bridgewater’s co-chief investment officer Greg Jensen recommended gold on the basis that “there is so much boiling conflict” in the world. His outlook for 2020 seems downright prophetic now: “People should be prepared for a much wider range of potentially more volatile set of circumstances than we are mostly accustomed to,” he said nine months ago.
But Bridgewater’s concerns about economic and social volatility as well as its gold recommendations go back a long way. In 2012, Bridgewater founder Ray Dalio discussed the potential fallout from sociopolitical upheaval with CNBC, saying, “When people get at each other’s throat, the rich and the poor and the left and the right and so on, and you have a basic breakdown, that becomes very threatening.” Around the same time, in another discussion with CNBC, Dalio insisted gold “should be a part of everybody’s portfolio” because of its capacity to hedge against risk.
To become the world’s largest hedge fund, you have to maintain an insight and willingness to think outside the box that puts you head and shoulders above many of your competitors. Bridgewater’s detailed attention to – and analysis of – potential economic, social and political threats to portfolios is a big reason the hedge fund enjoys the renown it does. That said, you don’t have to be the world’s largest hedge fund to appreciate the volatility besetting the national landscape and prepare your portfolio to withstand it with the proven safe-haven properties of gold. You just have to be an earnest retirement saver who’s committed to doing the best you can on behalf of your own long-term financial security.