The good news for gold investors is that the safe-haven metal is outperforming traditional financial assets. Stocks are collapsing at an unprecedented rate, while ostensibly “risk-free” Treasury bonds are falling in value.
The Federal Reserve’s rate hike last Wednesday failed to persuade investors that the central bank can control inflation without destroying the economy.
Jerome Powell’s remarks insisting that the economy is not vulnerable to recession were intended to persuade the general public, but they failed miserably – especially given the Fed chairman’s poor forecasting track record (“transitory” inflation has proven to be more like intractable inflation).
Sentiment indicators show that the general public is extremely pessimistic. Most people believe the country is heading in the wrong direction and are critical of President Joe Biden’s handling of the economy.
Meanwhile, the percentage of Americans who are bullish on stocks has fallen to multi-year lows in the last two weeks, according to the American Association of Individual Investors survey.
With so many asset classes under pressure – stocks, bonds, cryptocurrencies, metals – a “everything” rally could happen at any time.
However, bear markets frequently result in wild rallies that ultimately fail. Investors looking for long-term investment opportunities should therefore choose assets with strong fundamentals.
Bonds, on the other hand, continue to have negative real yields. It’s also difficult to find great value in equities, which have a long way to fall if the economy does indeed enter a slump.
Precious metals markets offer good relative value and safe-haven wealth protection. Though they are not at the extremes seen during the COVID panic of 2020, they may be nearing the end of consolidation ranges.
For assets such as silver, the buying opportunity presented in spring 2020 was a once-in-a-lifetime opportunity. Silver has historically been oversold in relation to almost everything, including gold. The gold-silver ratio reached an all-time high of 130:1.
On March 17th, near the absolute bottom of the market, we wrote, “Never has silver been as cheap to acquire in real terms as it is today.”
Now might not be the time to go “all in.” It’s possible that another engineered selling rout in highly leveraged futures markets will slam metals prices – especially if scared money flows out of equities and into US dollars.
Those who buy some bullion now and some later with the intention of averaging in while prices are low will be rewarded when the trend turns bullish.
Signing up for Money Metals’ monthly Savings Plan is the simplest way to implement a disciplined plan of regular bullion purchases. It’s also very cost-effective: Participants in monthly plans pay even lower premiums on eligible products than the general public.
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