Have No Fear, Gold's Fundamentals Are Clear

 | May 11, 2017 | 2:00 PM EDT
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Now is the time to take advantage of gold's dip and buy.

The yellow metal has come off its recent highs of $1,295 and dipped down to the $1,220 level. Despite this 6% drop, it is still up 6% for the year.

The fundamentals supporting the case for a continued bull market in gold have not changed. Like any bull market there will be peaks and valleys. 

The fundamentals driving the dollar price of gold higher are intact. Real interest rates remain very low, with the current 10-year rate at roughly ½ a percent. Zero or negative real rates have historically been supportive of gold.

Gold's value as a safe haven store of wealth is critical in times of financial uncertainty. This uncertainty is reflected in the current real rates. Regardless of another Fed rate hike, we at Strategic Gold still view the current real rate environment as very supportive of higher gold prices.

Gold is the one financial asset that carries with it no counterparty risk. The value of your gold does not rely on any other party's ability to pay. This is key, as the financial system is burdened with massive, excessive debt loads that we have never before witnessed.

Here in the U.S. we are currently laboring under huge amounts of both private and public debt -- $1 trillion in student loans, $1 trillion in revolving credit and $1 trillion in auto loans are the tip of the iceberg. And $20 trillion in U.S. government debt is also only part of the story. There are currently unfunded government liabilities well north of $100 trillion.

Other economic zones such as Europe and China suffer under similar burdens. Gold is the antithesis of debt. It is money, unencumbered and tangible, its value clear.

The dollar itself is also coming under severe pressures. After a multi-decade run as the global reserve currency there are signs that may be changing. Currently, the great majority of global trade, as well as global debt, are transacted in dollars. But the privileged status the dollar enjoys in world trade is being challenged. Bilateral trade agreements between China and its trading partners have begun the process of dethroning King Dollar.

Other nations including Russia, Turkey, Iran and India have followed this bilateral trade path. The process is long but the trend is clear: the days of King Dollar are numbered. This will weaken the dollar over time, something the current administration desires. A weak dollar is reflected in a stronger gold price. This trend is not changing.

Gold also performs very well in times of geopolitical uncertainty, which is clearly the case now and for the foreseeable future. Conflict and tensions always exist in the world but lately those tensions have become more profound.

Korea, China, and Syria have all been constantly in the news as daily events are met with veiled threats and saber rattling. Political change in Europe has also been an almost daily occurrence since the early days of the Greek economic crises, to Brexit, to the most recent French elections. Immigration and economic tensions between north and south are problems that persist.

Once again, we witness the value of gold in this type of environment, as purchases by European gold ETFs, led by England and Germany, were in excess of 109 tonnes in the first quarter of 2017, according to statistics from the World Gold Council. None of these geopolitical factors seems to be resolving anytime soon, so gold will continue to have a bias toward the upside.

So as news comes out and events unfold have no fear. Concentrate on the on gold's favorable fundamentals. The story has not changed. Markets move up and down but trends remain intact for long periods of time.

As any investor will tell you, buy low and sell high. We view this current dip in the gold price as an opportunity to buy low. No fear!

David Yoe Williams Jr. is a principal at Strategic Gold, a Naples, Fla.-based firm that buys and stores physical gold for investors.

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