While tax reform and deregulation may combine to boost the stock market through 2018, some investors are understandably concerned about excessive stock valuations and the potential for a stock market bubble.
Diversification is key to cutting minimizing potential losses and many investors have a portion of their portfolio in gold as a hedge.
Given what The Wall Street Journal called “a fresh sign of the anxiety that has accompanied the global stock-market rally,” many analysts are expecting another year of above-average returns for gold.
It may seem counterintuitive for stocks and gold to both perform well, but that’s what happened in 2017. And, as we’ve previously noted, even former Fed Chair Ben Bernanke says, “No one really understands gold prices.”
A weakening dollar and global political issues boosted gold prices, resulting in its best performance since 2010. The rise could continue this year, according to The Journal, because “(j)itters over a mix of market risks have stoked fear that the gains across many financial markets could be upended.”
Conversely, interest rate increases by the Federal Reserve Board, a strengthening economy and the potential for cryptocurrencies becoming more mainstream have the potential to stunt gold’s continuing growth.
As interest rates rise, gold may struggle to compete with U.S, Treasurys and other yield-bearing assets, but interest rates are still very low and are expected to remain relatively low at least through 2018.
Political unease could trump other issues, too. The push by North Korea and Iran toward becoming nuclear powers, protests in Iran, continued aggression by Russia and China, trade wars, Catalonia’s push for independence from Spain, enforcement of Brexit and any number of other political issues could push gold prices higher.