Gold Is Ultimate Contrarian Investment Right Now
Frank Holmes | Jul 01, 2021 12:21PM ET
Legendary global investor John Templeton once said that the best time to buy was when there was “maximum pessimism,” and the best time to sell was when there was “maximum optimism.”
This type of contrarian investing takes great conviction and nerves of steel, but its practitioners—Templeton included—can be rewarded handsomely. The trick is to find the opportunities.
Right now I see gold as the ultimate contrarian investment. The yellow metal is largely unloved at the moment. It’s set to notch its worst monthly slump since November 2016, and the 50-day moving average is threatening to fall below the 200-day moving average.
Bloomberg reports that the S&P 500-to-gold ratio is CME Group’s FedWatch Tool shows there’s a 100% chance of rates staying near zero until at least the end of 2021.
Everyone’s heard at one point or another that gold is an excellent inflation hedge. That hasn’t been true in every cycle, and it’s not true now: The CPI is up 5%, while gold is effectively flat compared to a year ago.
But that may be because we’re at “maximum pessimism,” as Templeton called it. Gold is presently out of favor as stocks chart new all-time highs. If Templeton were alive today, he might say now is the time to buy.
Plus, with bond yields trading below zero on a real basis right now, investors may have little alternative than to consider gold and gold mining stocks in an effort to combat inflation’s impact on their portfolios.
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The Consumer Price Index (CPI) is a measure of the average change overtime in the prices paid by urban consumers for a market basket of consumer goods and services. M2 is a measure of the U.S. money stock that includes M1 (currency and coins held by the non-bank public, checkable deposits, and travelers' checks) plus savings deposits (including money market deposit accounts), small time deposits under $100,000, and shares in retail money market mutual funds. The S&P 500 is a stock market index that tracks the stocks of 500 large-cap U.S. companies. The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index is a composite of single-family home price indices for the nine U.S. Census divisions and is calculated monthly. It is included in the S&P CoreLogic Case-Shiller Home Price Index Series which seeks to measure changes in the total value of all existing single-family housing stock.
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