2016 has been a great year for gold. The precious metal has risen about 17% so far this year. Right now is the best time to invest in gold for the long-term investor.
Elliott Wave theory is a form of technical analysis that posits that investors move between periods of bullishand bearish thinking in a reasonably consistent pattern. This theory is based on Ralph Nelson Elliott's discovery that market prices move in recognizable, repeating patterns, and that these patterns reflect a basic natural harmony manifested in the inherent herding behavior of crowds. Elliott discovered that these crowd behavior cycles appeared at every time scale. Although they were repetitive in structure, they were not always repetitive in amplitude or the time it took them to form.
Applying this principle, bullish sentiment moves prices up in five moves of alternating peaks and valleys, eventually pushing price of gold to a new high. This is followed by three bearish moves pushing prices lower.
Our current analysis is that gold has hit the bottom of its recent downtrend and that the price gains it has made since 2016 are forming a new substantial uptrend. The price of gold is in an uptrend with a bullish Elliott Wave structure.
Today, the first best investment opportunity is to be in is gold. Yes, you read that right. Gold will be a top-performing investment over the next three to five years. Gold is one of only a few asset classes that will maintain their value during a financial crisis. It has done so previously in the past. There will be times during the next crisis when different asset classes will come into focus, though.
If you are holding any stocks, this current rally is likely the last chance to liquidate your holdings in them. You can also purchase some gold if you don't own it already, but you should also hold a significant chunk of cash in order to own prepare for opportunities in other assets that will arise.
There are times when making money in stocks should not be your priority; the main goal should be to sit tight with your cash and wait. Do not fall for the various so-called experts who advocate being fully invested in stocks right now. If you have not made your fortune in the stock market's run-up of the past seven years, you certainly aren't going to do it right now.
Whom would you rather follow, the so-called experts, or the people who have actually made money time and again? Two such investors are Jim Rogers and Warren Buffett. Buffett's Berkshire Hathaway(BRK.A) - Get Report has more than $56.16 billion in cash and cash equivalents. Being an astute investor, he is holding large amounts of cash waiting for the next opportune moment to invest.
Jim Rogers, the famous commodity guru, has a huge investment in gold. Rogers stays away from the markets for long periods of time, entering only when there is widespread panic and fire sale prices on assets.
We foresee another financial crisis, but we also foresee the beginning of an uptrend in gold. Savvy investors should own some gold now but also hold a sizable portion of cash they can employ when everyone else is selling in a panic. These investors will keep their shopping lists ready and pick their favorite asset classes during market downturns. What percentage of your portfolio you should hold in cash depends on your investing philosophy, but in the current scenario, let the percentage of cash you're holding be at its highest level ever.
This article is commentary by an independent contributor. At the time of publication, Vermeulen owned physical gold and silver bullion. Chris Vermeulen is full-time trader and research analyst for TheGoldAndOilGuy Newsletter.