Golden opportunities in price action and market drivers

26 October 2015

It's much easier to panic than be rational sometimes, and this is exaggerated in the global financial markets. Indeed, take a look at the lows of all recent financial crises where we saw risk assets tank. It was at exactly those points that the market was most worried. It was at that point, too, that things stopped getting worse. That's what lows are, after all.

Furthermore, it's easy to look back and identify these moments. Much harder is to know when, say, Lehman is collapsing, or Greece is defaulting, or whether you should sell up and run for the hills.

One alternative to that is to exchange some of your exposure to equities and corporate debt to something that historically performs well in times of panic. Specifically, we're talking about gold.

The precious metal that is actually a sensible investment

First, let us say that this yellow metal, on the face of it, makes no sense at all as investment; it doesn't pay anything and never will. It's just that it is so ingrained in societies globally that it satisfies a lot of investors' requirements, being a store of value and an ‘inflationary hedge’ to name but two.

An inflationary hedge is any investment with an intrinsic value; this includes the energy commodities of oil, gas and coal, as well as farmland and some real estate.

For 5,000 years, gold and silver have held their value relatively well – globally – and they play an important role in 'the race to debase' by the world's most powerful central banks. As with buying anything, there are good and bad times to allocate, but today is more good than bad.

A rare beneficiary of the recession

Gold topped out at over US$1,900 per troy ounce over three years ago, when the super-cycle in commodities was at its height. Today, prices are marked some 40% lower, as commodities were sold off and the improving global economy offered better places for money to find a home.

Investors have preferred equities and bonds to hard assets in recent years. And that's perfectly wise. But, in the event that the world does succumb to another recession, gold will likely be a beneficiary, as it has always been during those times of difficulty.

Isn’t it weird how, no matter how far evolution progresses, gold – which has been around and been traded for several millennia – will almost never lose value?

So, with gold near its lows over the past four years, think about taking some profits from your Apple Incs and your Starbuckses and allocating it to an archaic metal. Because when we run into a little bit of difficulty, and the wheels come off the global market, gold will probably do just fine.

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