Why It's Time To Seriously Start Considering Gold As An Investment

As gold prices have moved sharply lower recently, it may be a good time to consider adding this asset to investment portfolios. Amid the wild optimism seen in the markets as the Dow approaches 20,000, gold remains a useful hedge against a stock market correction.

Gold, Politics And Markets

Gold prices have fallen more than 11 percent since Election Day and nearly 3 percent since the Fed interest rate hike last Wednesday. Gold's recent dip makes it an attractive buying opportunity, especially due to the increase in demand of the precious metals that persists in China and India.

"They buy on price softness typically. Westerners tend to buy on price strength. As far as gold goes, the old adage of buy low and sell high doesn't apply so much in the West, but it applies very strongly in the European and the Asian markets," said Philip Diehl, the 35th director of the U.S. Mint and president of U.S. Money Reserve.

How Gold Reacts

With gold's tendency to move inversely to other asset classes, the current weakness is not surprising given the market's performance, but when a reversal does happen, gold will be positioned well given the uncertainty surrounding the incoming president's administration.

"When gold is an appropriate percentage of a portfolio, it acts as insurance or cushion on losses in other investments," said Diehl.

Gold As A Safe Haven

Time and again gold has been the go-to asset in times of political and economic turmoil. While gold is an important asset to consider, many financial advisers overlook it because it doesn't have the turnover they need to produce commissions — people who buy gold, buy and hold.

"I think there is irrational exuberance that has swept through the markets, it can only be temporary," added Diehl. "I think this can only be temporary, and investors will discover that not everybody's going to be winners."

The Current Situation

With President-elect Donald Trump's economic policies remaining largely unknown, gold is seen as a form of wealth insurance in a time of economic uncertainty. Benzinga recently reported CNBC's Pete Najarian noted that while the Market Vectors Gold Miners ETFGDX is trading lower, he is seeing unusually large volume of traders buying January 19 calls. It's no coincidence that Trump takes office the next day.

"These record highs are exactly why you need to be buying gold, not despite them. I think this is exactly the right time when people ought to be re-balancing their portfolio in recognition that they are accepting a significant degree of risk putting their money in equities right now," concluded Diehl.