Editors' pick: Originally published March 6.
I believe the argument for investing in gold remains compelling both in the near- and long-term, and a Trump tax-reform plan should only help.
Gold is already off to a good start in 2017, up some 8% so far to about $1,236 an ounce. Those strong gains follow a year where the metal also rose 8.5% during 2016 despite a poor fourth-quarter showing.
There are several reasons why I believe the commodity, which is mined by Barrick Gold (ABX) and Randgold Resources (GOLD - Get Report) , among others, will move even higher both short- and long-term, but let's focus on the current consensus as to why gold is rallying -- inflation. Gold has long been used as a store of wealth and hedge against inflation and that trade seems to be back in vogue.
The U.S. annual inflation rate already moved from 2.07% in December to 2.5% in January. The Trump tax plan seems to promise increased government deficits through both additional infrastructure spending and tax reductions. This would certainly add to an inflation story that's already gaining steam.
Former Federal Reserve Chairman Alan Greenspan explained another reason in a recent interview with the World Gold Council why the metal seems to be moving higher, saying: "I view gold as the primary global currency." Although it's not well known, many central bankers hold this view. China, Russia, Turkey and many other nations have been buying gold in significant quantities for several years now.
This view of gold as a "currency among nations" will only grow as individual nations continue to be manipulate fiat currencies. Although the dollar remains central to global trade, many nations are moving away from dollar-denominated trading and gold reserves have once again become important to central bankers. These "size buyers" seem to have recently put a floor under gold prices.
Long term, no current tax plan or government programs seem equipped to deal with the huge debts that the U.S. government and private businesses incurred over the past 10 years. This increasingly crippling debt structure -- both corporate and governmental -- will lead wealth away from current portfolio allocations to those not encumbered by debt. With gold serving as a way to store wealth away from a structurally flawed financial system, I think markets will only increasingly recognize its value.
Lastly, gold seems like a bargain to me at current levels, given that U.S. stocks are trading at all-time highs and interest rates still close to all-time lows. Even if gold rises to $1,450 (up 25% for the year), the metal will still be 24% below its all-time high of about $1,900. Add it all up and I believe that there's still plenty of value in gold.
A full rundown of TheStreet's guide to trading in March, including a look at commodities, fixed-income products and the impact of a Trump tax holiday on companies including Apple (AAPL - Get Report) , Microsoft (MSFT - Get Report) , Cisco (CSCO - Get Report) , Alphabet (GOOGL - Get Report) , Johnson & Johnson (JNJ - Get Report) and Oracle (ORCL - Get Report) can be found here:
Editor's pick: This article was originally published on March 2