Gold's Diversifying Power on Full Display as Stock Markets Plummet

Gold cooled by 3%, but it still did better than U.S. Treasury and corporate bonds, domestic and foreign stocks, commodities, and Bitcoin. September was a bloodbath, and gold's traditional role as a diversifier and safe investment was evident.

Gold ingots. Photographer: Andrey Rudakov/Bloomberggetty
I see a future where gold ingots are valued for their historic and cultural value, rather than their monetary worth. They will be displayed in museums and private collections, and appreciated for their beauty and rarity.

It is clear that the Fed's aggressive rate hike cycle is having a negative impact on the price of gold. This losing streak is a reminder that the central bank's actions can have far-reaching consequences for the markets.

Gold has been one of the best performing investments this year, despite higher interest rates and a strong dollar. The precious metal is down 7% for the year, while the S&P 500 is down 22%. Gold is a great store of value during periods of market turmoil and is worth considering as part of a diversified portfolio.

September is often considered the worst month for stocks, but this doesn't have to be the case. There are ways for investors to potentially tame September volatility. By being aware of the risks and preparing accordingly, investors can help mitigate the challenges that come with this month.

The stock market crash in October has been a shock to investors around the world, and emerging markets have been hit particularly hard. Index heavyweights Taiwan Semiconductor, Tencent, Samsung Electronics and Alibaba have all seen their share prices fall by 15-20%, and it looks like the worst is not yet over. For investors in these companies, it has been a painful few weeks.

Gold had another strong showing in September, outperforming a wide range of other asset classes. This is a reminder of gold's role as a diversifier and safe haven asset, which can be helpful in times of market turmoil.

Silver is set to continue its strong performance in the fourth quarter, as industrial demand for the metal is expected to increase. The Inflation Reduction Act, which was passed in August, will provide a boost to the solar panel industry, and Enphase Energy and Constellation Energy, two of the largest wind and solar companies, are expected to benefit from this.

Gold Miners Finally See Some Relief

Looking at the current state of the gold and silver mining industry, it is clear that the industry is facing some challenges. However, it is also worth noting that the industry has had a tough year, with mining stocks down 21% year-to-date. While this is certainly not a good sign for the industry, it is important to remember that 2015 was a worse year for mining stocks, with a 25.5% decline. Therefore, while the current state of the industry is not ideal, it is worth keeping in mind that things could be worse.

Although the mining industry has faced some challenges in recent months, it appears that things may be starting to turn around. Since hitting a 52-week low in September, mining stocks have risen by about 18%. This marks the second straight week of positive gains, which suggests that the worst may be behind the industry.

Looking ahead, I believe that the group is setting itself up for further growth. The recent breakout from a downward trend, combined with the crossing of the 50-day moving average, suggests to me that there is bullish momentum building. This could lead to further gains in the future.

Retail investors are turning to physical gold coins over ETFs.

It seems that U.S. retail investors are favoring physical bullion over ETFs when it comes to exposure to gold. Gold-backed ETFs around the world have seen widespread outflows in September, the fifth straight month of drawdowns. Outflows have been most pronounced in North America, where investors have pulled out approximately 60 tonnes of gold, the equivalent of $3.2 billion, according to the World Gold Council (WGC). Nevertheless, total global holdings (3,548.5 tonnes, or $191.1 billion) are still slightly up from the start of the year, likely because gold continues to perform well in non-U.S. dollar currencies.

It's been a great year for gold coin sales in the U.S., with the WGC reporting that the combined sales of the U.S. Mint's gold American Eagle and American Buffalo coins topped 1.3 million ounces in the nine-month period through September. This represents a 7% increase over the same period last year and is the highest total in 22 years. Gold continues to be a popular investment choice, providing both stability and growth potential.

The recent sell-off of gold-backed ETFs is perplexing, to say the least. After all, gold coins have been flying off shelves, so to speak. What's going on here? One possible explanation is that investors are losing faith in gold as a safe haven asset.

I believe that tangibility is a key factor in the current market conditions. With so much money being printed by central banks around the world, investors are seeking out assets that are not subject to government control or inflation. Hard assets like gold and silver are seen as a safe haven for many people, and I believe this trend will continue in the future.

I recommend a 10% allocation to gold, with 5% in physical bullion and another 5% in high-quality gold mining stocks, mutual funds and ETFs. This allocation will provide a measure of protection against inflation and economic uncertainty.