STOCK MARKET RISKS POINT TO WISDOM OF GOLD

The importance of holding gold to diversify investment portfolios is increasing as the stock market charts further into unprecedented territory.

As of late October, the Standard & Poor’s 500 Index had scored 175 all-time record highs, the second greatest string of record highs in market history after the bull rally of 1990-2000. The lack of volatility in the market has been particularly noteworthy, as the S&P 500 has not traded more than 3 percent below an all-time record high for 245 consecutive trading days, the longest run ever.

Some veteran market analysts argue the lack of volatility is a sign of investor complacency and warn stocks are overdue for a correction.

One measure raising concern is the Relative Strength Index (RSI) which indicates whether a stock or index is overbought or oversold. The Dow Jones Industrial Average RSI stands at a peak not seen in 62 years, while the S&P 500 RSI is at its highest point in a decade. The last few times that measurement was anywhere near today’s level spelled trouble for the markets, warned CNBC commentator Jim Cramer. “Over the last 20 years, the RSI on the S&P 500’s monthly chart has broken out above 70 just three times… one, the peak of the dot-com bubble in 1999 and 2000, then right before the financial crisis in 2007, and then the oil implosion in late 2014,” said Cramer.

Near-term concerns facing the stock market include the risk Congress disappoints Wall Street by failing to approve a cut in the corporate tax rate, and the chance that the Federal Reserve takes a more aggressive approach to tightening monetary policy through higher interest rates, a distinct possibility if President Donald Trump decides not to reappoint Janet Yellen as chair of the central bank.

Investment strategists at Bank of America-Merrill Lynch recently warned clients the S&P 500 could drop 10 percent by early February if corporate profits fail to meet expectations, while Morgan Stanley predicted a decline of 5 percent by year-end.

Gold, historically, has shown a strong inverse correlation to equities, particularly during times of substantial stock market declines.