How to Play Gold When Trump Tension is High

The gold price nearly hit $1,300 last week due to strong words between the US and North Korea. Here's what to do next time tensions are running high.

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Recent tensions between the US and North Korea have largely dissipated, but many market watchers are now wondering when the next bout of pressure may hit. 

And for good reason. With just a few comments, US President Donald Trump was able to significantly ratchet up hostility with North Korea, leaving investors — and the rest of the world — 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 the gold price, which got closer to the $1,300-per-ounce mark than it has in months.

Some investors were likely able to reap the benefits of that gold price rise. For those who didn’t, two high-profile investors recently gave some advice on 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.

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.”

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.

That said, gold ETFs are often a popular option (though interest was muted in Q2 compared to Q1), 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.

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

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