What's Been Going On With Gold?

As we enter the final two weeks of 2016, it look like the usual push to get stock prices up will continue into year's end. Big money managers typically don't want to be caught holding lots of cash, especially as stocks have surged since the election. They don't want to take any criticism that they "missed the boat."

Meanwhile, the asset that awoke from a corrective slumber since the slide that began in 2011, looks like the effort was too much and it prefers going back to bed: gold. It's price has been tumbling, along with the prices of the best performing asset class in 2016 (so far): the gold (and silver) mining shares. What going on?

However you hold your gold - physical form in bullion coins or bars, paper form in ETFs, certificates, etc., or both - the recent slide may seem puzzling. The rise was pretty powerful, and reversal at these levels can feel jarring. Of course, there's always the chance that entire move up this year was one big, nasty head fake, and that the correction that began in 2011 continues. We, frankly, don't know. However, if you do think that holding gold in some form should always be part of your overall allocation, these words from the late, great Richard Russell sum up the ultimate value of gold no matter the current price swings:

Remember this: gold isn’t an investment (real investments provide a return). Gold is an asset.

In inflationary times, you hold gold because it’s a store of value and it tends to hold its purchasing power.

In deflationary times, you hold gold because gold will act as an island of safety if the financial system breaks down.

In our experience, Russell understood the proper place and role of gold better than just about anyone we've read and studied. So contemplate these words of his during these volatile times for the price of gold. It provides proper perspective.