Gold has long been viewed as a safe haven asset during times of economic and geopolitical uncertainty. As we look around the world today, there certainly is a measure of both of those. The question many gold and silver holders ask is, “why haven’t the metals moved up in price more than they have over the last year?”
The answer lies in a several areas.
Presently, stock market sentiment (the belief that prices will rise) is still pretty strong. This is not unusual when markets reach and extend all-time highs. If the broader markets are making new highs, the crowd sees less of a reason to own safe haven assets.
However, contrarian and value investors see this as an opportunity. Investors are supposed to “buy low, sell high.” You can’t buy low when a market is at all time highs. It’s more likely that you end up chasing the last few upticks before the herd turns and runs the other way. By this measure, gold and silver are well positioned for gains in the coming years.
Let’s be realistic. Gold and silver have been trading sideways now for the last four years while the stock market has made new highs. People like to be in the “hot” markets. That’s great – if they invested before they became hot. That is where real gains are made.
Again, by that measure, gold and silver bullion are well positioned. As we enter into the eighth year of economic expansion, interest rates are on the rise. An already long expansion (by historical standards) is due for a pause, and rising rates has been a key catalyst in causing those pauses to sometimes cause more harm than expected. When money begins to leave the stock and bond markets, it has to find a place to go. Precious metals are well positioned historically and from a value perspective to receive a nice portion of those funds.
We would be ignoring an elephant in the room if we did not acknowledge that crypto currencies have taken some of the investment funds that otherwise would find their way to gold and silver coins and bullion. Some, like Bitcoin, are being touted as the next “safe haven” currency.
It would be wise to look at this from another perspective. Cryptos are the shiny new object in the investing world. There have been spectacular gains for early speculators. However, they have never been tested in a real crisis. They have not stood the test of time. While some cryptos may find their way into a safe haven status eventually, the first time they, as a group, experience real volatility in a crisis, it would not be a surprise to see a major sell-off. It also would not be a surprise to see that when that happens, those funds – already earmarked for “safe haven” investments – flow strongly in the direction of gold and silver.
Related: 2018: The Year of the Crypto Hangover?
It’s been a difficult market over the last few years for gold and silver investors. The factors that have caused that to happen also now favor a change for gold and silver in the not too distant future.
Note: The opinions presented here are only for educational purposes and should not be considered investment advice. Consult a qualified investment adviser before making any investments.