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The Case for Holding Gold Even When Investors Prefer the Dollar


It's known as a counter-intuitive flight to safety, and it happens when investors, illogically, seek safety in the very asset that they are worried about. A recent example of this upside-down instinct is when investors flocked to Treasuries two summers ago amidst a broader market panic that was occurring when U.S. debt had just lost the AAA credit rating.

Another more timely example is the dollar trade, which has investors seeking the safety of the U.S. currency as they try to shield themselves from the risk of fiscal mismanagement by the U.S. government.

This demand-for-dollars scenario is one reason why investors in commodities, particularly precious metals, are in a funk over what to do about the future.

For Tom Lydon, editor of ETF Trends, the answer is to ride out any short-term volatility that might be triggered by a stronger dollar and embrace the broader trends of dollar debasement, the fiscal cliff, and more easing by the Fed.

''I think gold probably has more things going for it than not at this point," Lydon says in the attached video. "We're all asking, 'what do I do?' but there are a lot of investors out there who haven't invested in gold, who haven't diversified yet. I think they're going to step forward and say, if 'I haven't done it, maybe now is a good time to do it.'"

While he continues to recommend shares of the SPDR Gold Shares (GLD), he's currently more drawn to the miners and sees even better opportunities in funds like the Market Vectors Gold Miners ETF (GDX) and the basket of smaller players found in the Market Vectors Junior Gold Miners (GDXJ). In addition, Lydon says the miners "haven't done anything in five years at a time when gold has doubled," adding that they also sport a single-digit forward P/E.

"Right now gold miners really are a value bet," he concludes.