I drove over 950 miles round trip for a conference this week.
And it seemed like everywhere I turned, prices were out of control!
Of course gasoline is hitting record highs. But when you tack on tolls, a hotel room, parking and travel meals, the cost for the trip borders on outrageous!
Inflation is the theme of the day — from Wall Street to Main Street. Investors and consumers are both scrambling to protect themselves.
And today I want to explain why gold may finally be living up to its reputation as an inflation hedge.
Two Challenges for the Gold Rally
While official inflation measures have been hitting multi-decade highs, gold prices have been relatively dormant.
That’s not good for anyone expecting gold to help protect their wealth from inflation.
There are two primary factors that have kept gold from acting like it traditionally would during times of inflation.
First, the U.S. dollar has actually been quite strong. Just look at how the greenback has been holding up against other world currencies.
This is largely because global investors have seen the dollar as a safe place for parking capital. And so far, the U.S. Federal Reserve has been more hawkish on interest rates than other central banks.
(When the Fed causes rates to move higher, it makes the U.S. dollar more attractive because investors can get higher yields.)
A second challenge to gold has been the belief that cryptocurrencies will replace the functionality of gold. Some have even called these tokens “digital gold.”
But cryptocurrencies certainly haven’t fulfilled this functionality.
At a time when inflation is raging, Bitcoin and other cryptocurrencies have been plunging. So much for a storage of value!
As Pressures Ease, Gold Could Surge
Lately, both the dollar strength and crypto replacement thesis have been called into question.
Other central banks like the ECB and the Swiss National Bank made headlines this week by hiking their own interest rates.
As international rates move higher, global investors have more options around the world. So higher overseas rates is already putting pressure on the U.S. dollar.
Meanwhile, Bitcoin just can’t seem to find support. And some iconic investors have gone on the record stating that Bitcoin could drop another 50% from current levels.
All of this bodes well for gold prices. And in a market where many other assets are falling, gold has started to outperform.
Inflation concerns are widespread.
The Fed has been unable to prove that it can reverse the tide.
And investors are desperate to find ways to protect their wealth.
I expect the recent stability for gold to lead to sharp price gains in the second half of this year.
And as we’ve discussed, there are plenty of great ways to profit from this trend.
Stalking Gold Plays With our Put-Selling Income Strategy
As I write this alert, my put-selling income program currently has two gold positions in play.
I’m looking to add more exposure over the next few weeks.
For those who don’t know, this put-selling program has a unique strategy.
We sell put contracts on stocks that I believe are set to trade higher. By selling these contracts, you’re entering an agreement to buy shares of stock at a certain price — within a certain timeframe.
Investors who sell put contracts receive an up-front payment in exchange for that agreement.
If the stock holds its ground or trades higher, that agreement can expire. This means you don’t have to buy shares of stock and you keep the income you’ve received from selling the put contract.
If the stock trades lower, you may be required to buy shares at the agreement price. (This is why you should only sell put contracts on stocks that are attractive enough to buy.)
Alternatively, you can “buy out” of your agreement by re-purchasing the put contract you originally sold. Depending on where the market is trading, you may buy out at a profit or at a loss.
For more information on how this strategy works — and the stocks we’ve used with this approach — check out my put-selling model.
Regardless of how you set up your tactical trades, I believe precious metal investments deserve a spot in your brokerage account.
Here’s to growing and protecting your wealth!
Zach
