By Andrey Dashkov, analyst, Casey Research
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Gold has taken a dip this week. It’s trading at two-year lows as of writing.
That’s happening because the market expects the Fed to continue hiking interest rates… and the U.S. dollar to be a better store of value as a result.
So investors liquidate their gold positions and move into the U.S. dollar and Treasuries.
(Investors view the U.S. government debt as another safe haven.)
Now, there is some truth to that. If interest rates go up, investors’ dollar holdings will be strong against other currencies. And they’ll pay a higher yield as interest rates grow.
But this also means that gold is oversold.
And when something looks cheap, it’s time to buy… not sell.
In a moment, I’ll suggest a strategy that will work for you regardless of where the dollar goes… or where gold ends up.
First, Always Hold Cash
(Regardless of Where Interest Rates Are)
As an investor, you need to have liquidity available.
And currency is the most liquid asset.
If you see an attractive investment idea, you need to allocate some capital to buy the investment.
That capital is your “dry powder.” It’s there for you to deploy at the right time and for the right opportunity.
It’s your “between trades” asset class. It’s there to make other things happen.
If in the meantime, it earns you a little income… don’t panic.
It’s not meant to be a great long-term holding. Inflation erodes its value over time.
You hold cash because it’s liquid. That’s where its power comes from.
Second, Think Long-Term
Gold and gold stocks are your long-term holdings. Unlike cash, whose value stays relatively constant (albeit it goes down slightly over time due to inflation), gold and gold stocks aren’t as liquid.
What do I mean?
Yes, you can trade gold and gold stocks daily via exchange-traded funds (ETFs), for example.
But the daily moves of gold and gold-related ETFs are random. You never know if tomorrow will be a good time to sell out of your gold holdings.
This week showed exactly that. Sometimes, in the short term, gold and gold mining companies take a dip.
If you absolutely need to sell at that moment, you will find yourself at a disadvantage.
Gold and other investments are longer-term holdings than cash.
That is how you should view them.
This year, gold hasn’t protected investors against inflation. Over longer periods of time, it did act as a “safe haven…” but only to those who didn’t sell out of it when its price declined.
Third, Always Use a Bargain
Gold is down 6% over the past 12 months.
Gold miners are down 22% on average.
What does that tell you?
It’s a good time to buy gold and an even better time to buy gold miners.
This goes back to our founder Doug Casey’s proven mantra: “Buy low, sell high.”
Gold and gold miners are “low” now. You know what to do.
Plus, gold miners provide “leverage” to the price of gold. Meaning, over longer periods of time, their prices rise more than that of the metal itself.
An easy way to get exposure to gold miners is through the VanEck Gold Miners ETF (GDX). It holds 49 mining companies, including some of the biggest names in the gold mining industry.
Good investing,
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Andrey Dashkov
Analyst, Casey Research