Doomsday Clock Reinforces Need for Safe Haven

Global tensions increase appetite for safe-haven assets such as physical gold.

Somewhat forgotten in recent times, ValueWalk writes that the concept of the Doomsday Clock has flared up once again, due to the possibility of nuclear war between the U.S. and North Korea. The last time the clock ticked so close to midnight, they say, was 1953, when the Soviet Union tested its hydrogen bomb.

But tensions with North Korea aren't the only thing that has investors worried, the article notes. Political uncertainty in the U.S., a weakening dollar and ongoing terror attacks have all helped reinforce the value of safe-haven assets such as gold.

The metal reestablished itself in the financial crisis of 2008-2009, when the world's stock markets fell by about 50%, or a total of $34 trillion. During this time, gold helped savvy investors stay afloat due to the negative correlation that it often has with stocks. And it did more than just shield those who owned it; between 2007 and 2009, gold rose from $670 an ounce to $938 an ounce, amounting to a gain of 40%.

Gold's bull run continued after 2009, as governments around the world flooded their economies with money in a post-crisis environment. By 2011, the metal rose past $1,900 an ounce, posting its all-time high.

The article goes on to state that the money printing that allowed gold to reach peak levels shows why the metal continues to hold its value while currencies rise and fall. Unlike paper money, gold is finite, which means governments can't simply add more gold to the system as desired.

This is why, the article argues, the gold standard can't be restored: there is simply too much money in circulation compared to the finite supply of gold. It's also why the price of gold has close to doubled in the last decade, a trajectory that the metal is all but guaranteed to continue on.

Although the gold standard was abandoned in 1971, its proponents maintain that out-of-control money printing will end in disaster. It already had catastrophic results in France, China and Germany, and Zimbabwe and Venezuela are recent examples of paper money becoming worthless due to irresponsible actions from the government.

The article concludes by reminding readers that in all of those examples, those with a significant allocation to gold remained largely untouched by the consequences of central bank manipulation. And, they believe that the same will be the case when the next crisis hits, regardless of the direction it comes from.

Political Woes to Heat Up Gold and Bitcoin

Political uncertainty and elevated risk to increase appetite in safe-haven investments.

Safe-haven investments shine in times of uncertainty and elevated risk. As TheStreet's David Yoe Williams points out, for U.S. investors, there has been no shortage of either in recent times.

Yoe cites domestic issues as being the most immediate concern, with the publicized back-and-forth over Obamacare taking center stage. Republican Senators have neither managed to repeal the Affordable Care Act nor find a replacement for it, a problem which will have ongoing ramifications for the U.S. economy.

Aside from the growing U.S. debt ceiling, another point of concern is the growing perception that the Trump administration isn't as efficient as many had hoped it would be. Yoe claims that this could cause a significant downturn in the stock and bond markets, both of which benefitted from the promise of an economic recovery, or the "Trump Bump".

International issues are increasingly becoming a concern as well, with recent events putting more pressure on an already strained relationship between the U.S. and Russia. There's also risk coming from Europe and China – both face an increasing amount of debt, and both will soon host elections that could significantly shake up their politics.

Many people are concerned that North Korea is a ticking time-bomb, with the country continuing to make subtle threats in the form of showcasing its offensive might. The Trump administration seems content to respond to force with force, which would put the markets in turmoil and increase the appeal of safe-haven assets.

Beyond politics, another current hot topic for the financial markets are cryptocurrencies. Recent ruling by the U.S. Securities and Exchange Commission show that the government is starting to take them seriously. It's clear that investors are looking for a safe-haven commodity outside the monetary system because not only are they note closely tied to economic and geopolitical issues, but they are also able to provide anonymous transactions away from government scrutiny.

As popular as cryptocurrencies might be getting, Williams notes that the precious metals market looks ready to outstrip them. After all, despite their touted benefits, cryptocurrencies bring with them a significant amount of volatility and could be the most unpredictable out of any asset.

Precious metals can provide a safer alternative, which is ideal when talking haven assets whose primary purpose is protection. Gold has gained 9% this year with silver posting a 3% gain during the same period; by all accounts, this appears to be the beginning of a positive trend in both markets. As Williams puts it, the "gold standard" protection that these metals offer will continue to be highly valued in an environment where certainty seems less and less available.