I’ve never liked gold—but I do now: Trader

Gold is gaining the favor of some long-time skeptics.

The precious metal has outperformed other major asset classes this year, rising 12 percent in 2016. Gold has become increasingly useful to investors as stocks around the world have fallen, said options trader Dennis Davitt of Harvest Volatility Advisors.

"If you're worried about your equity portfolio going lower, you buy gold as a hedge. If you did that January 1st this year, it's worked wonderfully," he said Tuesday on CNBC's "Power Lunch."

The commodity is looking even more attractive in the face of negative interest rates, Davitt said, especially as Treasury yields tumble. On Tuesday, the Japanese 10-year bond yield fell into negative territory for the first time ever.

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Under ultra-low or negative interest rates, holding cash in a bank should cost investors more money, Davitt noted. Despite the fact that gold also costs money to store, Davitt said it should still make a better investment than cash in these circumstances.

"One of the assets that I never liked for my whole trading career was gold," Davitt said in a CNBC "Trading Nation" segment. "But now ... if you have to pay money to store your assets somewhere, I'd rather store a hard asset like gold than something like paper currency."

The surge in gold has also boosted gold mining stocks, with the gold miners ETF (GDX) gaining more than 22 percent year to date. But between stocks and physical gold, Max Wolff of Manhattan Venture Partners said the precious metal should make a better buy.

"The miners are pretty far out from where they should be now, are a little ahead of their skis and are more expensive than gold. We like the metal more than the miners, but think they're both headed up," Wolff said Tuesday on "Power Lunch."

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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