Absolutes are rare in investing, but this one comes pretty darn close.
Most investors instinctively know that gold tends to rise when bad news hits the economy. Gold is essentially the “fear” trade. When fear spikes, investors flock to the precious metal and push the price higher.
One of the better measures of fear is the VIX (CBOE volatility index). It is a widely used measure of market risk and is often referred to as an investment “fear gauge.”
So, it shouldn’t be too surprising that when the VIX jumps, gold does, too. And that’s exactly what’s happened since 2001.
Look at how gold has performed every time the VIX exceeded a reading of 30.
6 Months Later
Gold went down six months after the VIX hit 30 only once. All the other 17 times gold was higher, and it rose by double digits eight of those times. The average return was 9.1%.
The VIX hasn’t hit 30 since September 2011. But the history suggests that when it does—and sooner or later it will—the gold price will rise.
Why might the VIX jump? There are a lot of reasons, as hedge fund manager Dan Tapiero points out in this short video. The biggest catalyst right now—and it’s one we investors have zero control over—is the growing trend of negative rates.
This largely accounts for why gold has done well this year so far, and yet this trend continues to grow. However it ends, it’s not likely to be kind to investors.
See why this highly successful hedge fund manager says that more turmoil is ahead and how gold can safeguard your portfolio.
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