As many readers might already know, I have been bullish on precious metals for quite some time. My reasoning behind these positive forecasts rested on the long-term state of overvaluation that has characterized the equities space (particularly in technology stocks) over the last few years and the market’s extended need for a downside correction in order to rebalance valuations in stocks so that they align with history’s longer-term averages.
In recent months, the emergence of COVID-19 has only strengthened these assertions because gold and silver assets typically thrive during periods of heightened economic uncertainty. Of course, this is why a financial crisis affects valuations of precious metals and coins in ways that are often bullish and investors should be aware of these traditional market correlations at all times.
Since the middle of 2019, these historical trends have played out beautifully and gold markets have outperformed the S&P 500 by a wide margin. During this trading period, the S&P 500 has gained by about 24%. However, valuations in gold have proven themselves to be a much more favorable investment (with gains of nearly 38%) during this trading period.
Going forward, precious metals investors must ask themselves a few critical questions in order to determine whether or not these bullish trends are likely to continue. In this regard, two key areas stand out. Unfortunately, these areas relate to the growing debt levels characterizing the U.S. economy and the continued global economic uncertainties that may continue as a result of the COVID-19 pandemic.
Unfortunately, the latter will be much more difficult to gauge than the former. In other words, we simply do not know how much longer everyone will need to wait before a majority of the global population is able to receive a viable vaccine for coronavirus and this has made it much more difficult to provide accurate projections for global GDP growth.
But the former can be quantified because we know exactly how much money the Federal Reserve is printing and which types of debt-funded stimulus packages are being presented by the U.S. Congress. Of course, these might be some of the most frightening debt accumulation numbers we have ever seen and this is likely to have a long-term destructive effect on the value of the U.S. dollar.
On the positive side, we can say that proactive investors do have strategies available that will make it easier to avoid a debt-fueled collapse in stock markets. If history is going to be the best guide, these trends suggest that investors should consider adding some gold, silver, or platinum assets to a diversified portfolio strategy. Given all of the extreme market volatility that has been present in the economy this year, it should be said that there is really no excuse for avoiding protective investment strategies. The reality is that there is simply too much uncertainty in these markets and investors must locate assets that have the potential to generate gains while the rest of the market might be in decline. For these reasons, I believe investors can find true safe haven protection in the time-tested asset trends that can be found in the precious metals space.
Richard Cox is a personal investor with more than two decades of experience in the financial markets. He is a syndicated writer, with works appearing on CNBC, NASDAQ, Economy Watch, Motley Fool, and Wired Magazine.
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