Your Portfolio Needs Gold to Survive the Next Recession
Is buying gold a good idea? In today’s economy, you need to be prepared with an alternative to stocks and bonds. The signs point toward changing economic dynamics, and you need a portfolio that’s built to survive.
Slowing growth in the United States hit Asian and European stock markets in late March 2019, and the bond market is struggling with ever-declining yields. In fact, the US bond market is now showing an inverted yield curve, where investors get a better return on short-dated bonds than long-dated. Some investors see that as a sure sign that a recession is on the way. Ongoing geopolitical anxieties are not putting investors’ minds at ease either, as US trade tariffs continue with no sign of being resolved with either China or close American allies.
No Growth in the Bond Market
The bigger story with the bond market is that investors are running out of low-risk options. Treasury bonds are usually the easiest low-risk investment to make, but as pressure hits yields, the real rates of return can go into the negative (where the yields are lower than inflation). It’s already happening with German bonds and it could happen in the US as well.
If and when US Treasury bond real rates go into the negative, the smart money is on gold prices surging. Gold is a fear-fueled asset. When stock markets get rocky and there are limited alternatives for making money or even preserving wealth, fearful investors head for gold. The savvy investor can anticipate the situation and get into the gold game before the herd.
For the investor looking for a way out of the stock market in 2019, buying gold can be a great option to weather the coming storm. Here’s what gold has going for it in the economy of the near future:
#1 Diversification – The number one thing your portfolio needs is diversification. Your portfolio has to be ready for good times and bad. That means some exposure to riskier, higher-yield investments like stocks but a back-up plan where you can retreat to when recessions strike. Gold is an excellent inflation hedge, so it makes a good long-term investment. You can buy it and wait for the right time to sell.
#2 Fear-Based Price Gains – Recessions can be great for gold, especially when they come alongside negative real rates for bonds. Stock market crashes tend to see gold prices plunge along with everything else, only to recover and rapidly outpace markets as jittery investors refuse to dive back into stocks once they get out.
#3 Hedging – Gold is the ideal hedge against currency and inflation. Recessions almost always see monetary policy relax and money start pumping out of central banks. That can cause higher inflation rates and send investors scrambling into a precious metal with a fixed supply. Gold resists the devaluation currency regularly suffers, and in the long-term, enjoys significant growth compared to cash. It may not provide the kinds of yields stocks can, but gold is much stronger during turbulent times and performs well in the long-run.