KEVIN O'LEARY: Ignore the gold crash hysteria, a bounce-back rush is coming. So take this advice before it's too late... I have a magic formula
The typically calm gold market was hit with a wave of hysteria this month.
The value of the metal spiked last week, climbing to a record high of $4,381.58 per ounce amid trade tensions between the US and China, market volatility and economic uncertainty.
But on Monday, President Donald Trump offered a beacon of hope that he and President Xi Jinping would 'work out a fair deal' for trade.
Come Wednesday morning – after news of possible tariff negotiations prompted a sell-off – the price per ounce had plummeted to $3,967.20 amid fears of a 'mini bust.'
But I see no need to worry – this is just the reality of the gold market.
It's been coveted globally for thousands of years as an asset that is stable and universally valued. In times of uncertainty, there is a heightened demand. When there's good news, it pulls back.
And, in recent months, as trade talks between Washington and Beijing wax and wane, the market has reacted swiftly – surging when negotiations look promising, and spiraling when they stall.
With a trade deal on the horizon, the world just became a less risky place, so the gold market corrected.
The typically calm gold market was hit with a wave of hysteria this month
But on Monday, President Donald Trump offered a beacon of hope that he and President Xi Jinping would 'work out a fair deal' for trade
But make no mistake - it will move north again. When gold reaches a new high, the market pulls back a bit then retests that ceiling - often blowing right through it.
Gold should never be considered a profit-driver. Rather, it is a valuable and safe supplement (not a replacement) for a more robust and diversified portfolio.
Unlike stock investments, gold doesn't pay dividends just for holding it. Apple, for instance, might pay investors a chunk of change if the company performs well, gold won't.
Its value is based on scarcity and demand, and the only way to make gains is if it increases in value against your benchmark currency, the US dollar.
The reason for holding gold is simple: you believe it is going to do just that.
There have been periods where gold has done nothing for ten years, but I still held it and returns came two months later.
It's often seen as a sort of insurance – a safe-haven asset that protects against the risk of a turbulent stock market.
And given gold's consistent performance over the last two years, if you didn't include it in your portfolio then you missed out – if you did, you've been richly rewarded.
I consistently hold five percent weighting in gold – selling my positions back down when the value soars. That tactic has served me well for decades.
I consistently hold five percent weighting in gold – selling my positions back down when the value soars. That tactic has served me well for decades
There are multiple ways to get into the gold market, but the two main ones are: buying physical gold or buying into an Exchange Traded Fund (ETF).
Tangible gold can be purchased online in the form of bars or coins.
While bars are typically stored in a vault elsewhere, gold coins have the potential to be useful far beyond your investment portfolio.
In an emergency, gold is accepted as a form of tender. In fact, after Hurricane Katrina in New Orleans, when power was out for weeks and all the ATMs were down, people started trading gold coins for groceries.
You'd be amazed at just how fast you run out of cash if the ATMs are not working.
You can purchase tradable, fungible gold coins that you can keep in your safe at home, and if the poo-poo hits the fan, and you get stuck without electricity, people will accept those.
The easiest thing to do is to get a sleeve of gold coins and put them under your bed - just in case. If you have two or three dozen of them, you'll be able to buy groceries when nobody else can.
I keep some around, but for vintage value as a collectible item as well. In fact, some of these collectible gold coins from the last few centuries have actually increased in price beyond the value of gold itself.
For those who don't want to own the physical metal, they can invest in an ETF which is a proxy that allows them to hold an asset which tracks gold's value without having to buy it in physical form.
If you're running a multi-billion-dollar portfolio, it makes more sense to buy the gold, pay to store it in a vault elsewhere and use an ETF to trade in and out of the position.
But for me personally, I prefer the majority of my gold position to be the real thing. You can take it out, slam it on the kitchen table and everybody can look at it.
Warren Buffett's $6billion stock exit is his loudest warning yet