The price of gold has been feeling the pressure lately from a stronger U.S. dollar, which is at a four-month high, and rising Treasury yields. Nevertheless, the yellow metal eked out a positive March quarter, returning close to 1.3 percent, while the S&P 500 Index posted its first negative quarter since 2015. This tells me the investment case in gold and gold mining stocks remains as strong as ever.
Below are four more reasons why I think you should consider adding gold stocks to your portfolio right now.
1. Gold mining stocks look inexpensive.
Billionaire investor Warren Buffett once said: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
Compared to the broader equities market, gold mining stocks, as measured by the NYSE Arca Gold Miners Index, look incredibly “marked down” right now. They’re far below the average gold miners-to-S&P 500 ratio of 0.7 for the nine-year period, and nearly as undervalued as they’ve ever been.
I believe that for investors with a long-term horizon, this makes gold miners look especially attractive as we await valuations to revert their mean, or average. Hopefully, this can be achieved without a significant decline in the S&P.
2. Rising inflation has historically lifted gold prices.
Inflation can be understood as the destruction of wealth. Every time consumer prices head higher, a dollar loses some of its value, whether in your pocket or your savings account. Inflation can also weigh on stock prices, as some investors anticipate it cutting into corporate earnings. They might, therefore, decide to move their money into other assets.
That includes gold, which has enjoyed a long history of being an attractive store of value during times of higher inflation.
After being mostly stagnant for several years, inflation looks as if it’s ready to stage a strong comeback, thanks to rising oil prices and new trade tariffs imposed by the Trump administration, among other factors.
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