Inflation is spiking as oil and gas prices soar through the roof, with the U.S. and Iran still facing off over the Strait of Hormuz. U.S. household purchasing power is in decline. Consumer confidence is at an all-time low. Home sales are dropping, as are auto sales. Yet stock market indices are trading near all-time highs, as investors have bid up a narrow group of technology companies benefiting from Corporate America’s embrace of artificial intelligence.
“We’ve never had people in a more gambling mood than now,” Warren Buffett told CNBC at the recent Berkshire Hathaway annual meeting. “Prices for an awful lot of things look very silly,” said the famed investor who is now chairman of Berkshire, after having stepped down as CEO at the beginning of 2026.
Indeed, the stock market appears increasingly detached from economic reality. Higher inflation is driving up Treasury bond yields, which will lift mortgage rates and likely further depress the housing market. The higher cost of borrowing should also hurt auto sales.
Given the divergence between stock market perception and economic reality, the market is vulnerable to a serious drop, though no one can predict exactly when.
So, to protect your investment portfolio follow one of the cardinal rules of investing: diversify your holdings. Gold is an excellent portfolio diversifier because of its low-correlation with other investment assets. Not only has gold been proven to reduce portfolio volatility, but adding gold to a portfolio has also improved performance for investors who have their money primarily in stocks and bonds.
