By John McDonald
Nervous investors are finding precious metals more appealing than ever, and that is not likely to change in the near future, analysts say. Although precious metals in your portfolio do not generate income while you are holding them, as Wall Street Journal reporter Amrith Ramkumar recently observed, they are also far less likely “in a world of falling – or outright negative – yields” to keep investors’ portfolios earning positive returns.
Ramkumar went on to say that in today’s global economic environment, the “major trade-off that typically confronts those interested in owning gold (it offers no yield at all)” is eliminated.
Typically, many investors who prefer “safe” investments opt to place their money in stocks, bonds, or mutual funds because these asset classes are considered to be conventionally “safe” for long-term investing due to their tendency to appreciate over time.
This perception of safety is widespread, albeit somewhat inaccurate since the relative safety of these asset classes relies on an investor’s ability to wait until the time is “right” to liquidate them.
Gold and other precious metals, while generally considered to be the safest of the safe-haven investment options, often are less appealing to investors who believe that the opportunity costs associated with owning gold make it less appealing than other conventional options.
The perceived cost of owning gold – that the capital spent purchasing the precious metal is essentially “lost” to holding the asset rather than growing in another asset – is less of an issue in today’s market, where conventional investment values are fluctuating wildly and feel largely unpredictable.
Investors who own gold can presently feel far safer in their expectations that they will be able to liquidate their precious metals assets for a positive return, should they wish or need to do so, than they can feel confident other assets will generate positive returns upon liquidation.
Stock Market Turbulence Unlikely to Ease
The volatility present in the stock market is unlikely to ease in the near future, and while investors love record-high values, the accompanying negative trends make Wall Street an uncertain bet at present.
Given that in August of this year, markets tumbled while many respected economists started muttering the word “recession” and now, at the start of October, the S&P is up 19 percent year-over-year, investors are finding it difficult to determine if and when the time has come to “cash out.”
After all, who wants to miss the next record-setting day on the market?
Most investors will likely opt to stay in the game on Wall Street, but they are increasingly likely to hedge their bets with a more predictable option: gold.
Precious metals values soared over the summer under the influence of trade tensions with China and predictions that the dollar might plummet in value, but even when they backed off in the third quarter, gold still posted double-digit annual gains.
Gold futures, a more complicated investment, also gained popularity over the course of the last nine months.
Analysts say the positive trend is likely to continue for gold even if the dollar continues to stabilize and even gain more value compared to other global currencies.
“There is potentially a little more fuel to the upside if we do get a sudden, dramatic escalation in the trade war,” said head of base and precious metals derivatives trading at Bank of Montreal Tai Wong.
International Assets Advisory president and CEO Ed Cofrancesco agreed. “We’re big fans of both [gold and silver] as havens,” he said, noting his company is “more of a fan of silver than gold” at present because of “industrial applications.”
Even if the gold rally stalls in the short term, there are plenty of signs it is nowhere near finished.
A stall is the perfect opportunity to buy in before values head higher.
Source: The Wall Street Journal