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As Gold Outperforms Stocks, Mainstream Starting to Sit Up and Take Notice

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Earlier this month, we reported that gold has outperformed stocks so far this century. If we index both gold and the S&P 500 to 100 as of Dec. 31, 1999, gold has returned 86% more than the market.

Gold also looks good on a shorter timeline. Despite Dow Jones records that have kept all eyes focused on the meteoric rise of the the S&P 500, gold has actually outpaced stocks in 2017. Now the mainstream is starting to sit up and take notice.

A CNBC article Friday noted “gold is doing something unusual and quite bullish.

With a 12.2% year-to-date rally for gold futures and a 9.3% year-to-date rise for the S&P 500, 2017 is set to be the first year in which the yellow metal has beaten stocks since 2011. In that year, gold advanced 10.2% while the S&P 500 finished flat.”

CNN also jumped on the gold bandwagon, reporting the yellow metal has outpaced the stock market in a battle between “fear and greed.”

Greed is obviously alive and well. Confidence in the American economy has lifted the S&P 500 to an impressive 9% jump this year. But gold, which is thought of as a safe place during times of fear, is doing even better. The precious metal has soared 12% this year to nearly $1,300 an ounce, putting it on track for the best performance since 2010.”

Axel Merck told CNN that investors feel pulled in two directions. Greed – they don’t want to miss out on the surging stock market. And fear – growing concern stocks are significantly overvalued. Even some of the world’s big bankers are worried. A recent CityA.M. article put it pretty bluntly.

Whichever your preferred metric, historical regression analysis suggests expected returns for equities, from today’s starting point, are very low.”

Meanwhile, another fear factor – geopolitical risk – continues to push gold higher. Tensions between the US and North Korea coupled with political uncertainty in Washington D.C. have a lot of people jittery.

“Trump’s twitter handle still stirs nervousness in the marketplace,” Lindsey Bell, investment strategist at CFRA Research, wrote in a report. He went on to say gold is a “smart and defensive way” for investors to diversify their portfolio “ahead of an increasingly uncertain near-term environment.”

We recently reported on four factors that could help sustain a gold bull run. Exante Data founder Jens Nordvig appeared on CNBC Futures Now last week to talk up gold. He pointed out three key macroeconomic factors he’s focused on that appear bullish for gold.

I would say it’s the low-yield environment, the trend of the dollar, and strong growth in emerging markets. Those three things together are some of the things that have underpinned the gold rally, and they’re still here.”

Nordvig focused particularly on the dropping dollar, noting its 9% plunge since the beginning of the year. He said he thinks “dollar retrenchment” will continue into 2018.

Along with the three macroeconomic factors, Nordvig also factored in geopolitical risk, particularly the political uncertainty in the US.

There’s the government shutdown risk and then there’s the debt ceiling risk. There’s been an elevated risk since Trump started to talk about it in more casual terms at his speech earlier this week. That’s definitely something that’s holding the market back, and it’s something that could potentially give a boost to gold while dragging the dollar down.”

We’ve been focusing on these factors for months. Now it seems that the mainstream is starting to catch on.


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