How to Play Gold When Trump Tension is High

Tensions between the US and North Korea have come in waves this past year.
Public clashes between Donald Trump and Kim Jong-un have come intermittently, buffeting gold prices and leaving investors wondering what they should do if the markets get volatile again.
And for good reason. With just a few comments, US President Donald Trump was able to significantly ratchet up hostility with North Korea last summer. After a series of hostile comments, investors — and the rest of the world — were left wondering whether nuclear war could be imminent.

Among other things, Trump said the US would meet North Korea’s threats “with fire and fury,” then followed up by saying, “[i]f North Korea does anything in terms of even thinking about attack … they can be very, very nervous.” Those statements had a major impact on gold prices, which got closer to the $1,300-per-ounce mark than they had in months.
In 2018, new spats have included a discussion of whose nuclear button is bigger, and the deployment of US B-52 bombers to Guam. Gold prices have continued to climb, and were above $1,300 at the end of January. While factors other than US/North Korea tensions helped to drive prices up, they are certainly part of the picture — read on to learn how to reap the benefits if the relationship between those two countries gets strained again. 

How to cash in when tensions are running high

“When it comes to assessing political matters (especially global geopolitics like the North Korea matter), we are very humble. We know that we don’t have a unique insight that we’d choose to bet on,” Ray Dalio, manager of the world’s largest hedge fund, wrote in a LinkedIn post in mid-2017. 
That said, Dalio went on to suggest that investors “stay liquid, stay diversified, and not be overly exposed to any particular economic outcomes.” He added, “[w]e can also say that if the above things go badly, it would seem that gold (more than other safe haven assets like the dollar, yen, and treasuries) would benefit, so if you don’t have 5-10% of your assets in gold as as hedge, we’d suggest you relook at this.”
Buy gold?
When asked by CNBC to comment on Dalio’s call to buy gold, commodities expert Dennis Gartman, who edits and publishes the Gartman Letter, agreed wholeheartedly. “I do agree, and I think you should always have at least 5 percent in gold just in case — one never knows when geopolitical risks will arise, one never knows when something untoward will happen economically,” he said.

“So yes, you should have some part of your portfolio in [gold]. I think you should have a tad bit more than 5 or 10 percent at this point. I think the stock market looks a little vulnerable, the geopolitical circumstances are getting worse and worse. So I think that you probably need to bring that up to 10 to 15 percent rather than 5 to 10, and take that out of your position that you have in the equities market.”
Dalio and Gartman didn’t specify how exactly investors should get exposure to gold, though it’s reasonable to assume that like many other top investors they’re most interested in buying physical metal.
Buy gold equities?
That said, gold ETFs, which have been shown to be more stable, are often a popular option, and some experts have argued that it’s now a good time to buy gold stocks. For instance, Adrian Day of Adrian Day Asset Management recently commented, “this is a very good time to invest in gold and an even better time to invest in gold stocks.” Other options for gold investing include gold futures and gold IRAs.
Then again, famed investor Jim Rogers has said that investors are too bullish on gold, and that it would be better to wait until everyone is selling gold to get in. But who knows when that could be — and compared with gold’s high of $1,900 in 2012, we are seeing low gold prices that are enticing to get in on.
What do you think about gold prices and whether or not now is a good time to invest? Let us know your thoughts in the comments below.
This is an updated version of an article originally published by the Investing News Network in 2017.
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Securities Disclosure: I, Amanda Kay, currently hold no direct investment interest in any company mentioned in this article.