Earlier this year, the price of gold hit record highs of more than $5,000 per ounce. While it has fallen sharply since then, I believe it'll get back to those levels before the year is over.
Gold is in high demand when investors are worried about the stock market or the economy as a whole. Although the market is doing well and the S&P 500 has hit new records this year, I don't think that the excitement will last. Here's why.
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Multiple headwinds could derail stocks this year
Things can change quickly in the market, as investors have seen in recent years. Tariffs, trade uncertainty, Fed interest rate decisions, and geopolitical concerns are all factors that can drastically impact investor sentiment, in addition to earnings results. At a time when the S&P 500 is looking expensive and after three consecutive years of above-average returns, it may not take much to rattle the markets and convince investors to seek safety.
New Fed chair Kevin Warsh hasn't offered guidance on interest rates, and if he's true to his word that 2% inflation is the ultimate goal and there are no compromises on that, then it's simple: interest rates are likely to rise this year. That's one headwind for the market. Another could be the ongoing challenges with the U.S. and Iran reaching a deal, without which oil prices and inflation would remain high. Lastly, there's also uncertainty around this year's midterm elections, which adds a new factor, as political uncertainty may give investors an additional reason to seek safety.
Investing in a gold fund may be a solid move for investors
Rather than physically buying gold, investors can invest in the SPDR Gold Shares (GLD +0.09%) fund. It's an exchange-traded fund (ETF) that is backed by gold. When the price of gold was rallying earlier this year, the ETF was up and trading at a new 52-week high. If there's a resurgence in gold, as there very well might be due to the factors I outlined above, then this could be an investment that once again takes off in value.
NYSEMKT: GLD
Key Data Points
From both a risk-reduction standpoint and as a way to diversify, building a position in the SPDR Gold Shares ETF can be a good move for investors right now, because while the stock market looks hot of late, it may not end up staying that way.
