Olivier Garrett, a columnist for the HardAssetsAlliance website specializing in precious metal investing, writes interestingly about the price development of precious metals and how to approach the ongoing downturn that has lasted for several years.
Whether it is precious metals or any other investment instrument, it is always beneficial to reassess your investment principles - why did I originally invest in precious metals, is the original reason still valid, and is there a good reason to sell right now?
Source article for the summary:Hard Assets Alliance
Image: Pixabay
Market frenzy
According to Garrett, the current trend of divestment in the precious metal markets is completely typical investor behavior. Most investors invest when prices are climbing to their highest. Then, when the investment target is in serious decline, investors divest.
When the stock markets crashed in 2008, few of us were willing to reinvest in the capital markets. We wish we had bought then, but fear prevented us from acting.
In fact, many investors at that time realized their portfolios at completely the wrong time.
Today, the situation is the opposite. In just two months, we will be in the longest bull market of modern times. However, most investors are anchoring themselves in speculative stocks with the expectation that the current bull market will last forever.
Garrett notes that just like in the late 1990s, people have bought into the idea of a "new economy," where traditional metrics for measuring market valuations no longer apply. Investors were buying stocks of companies at exorbitant prices – in the worst cases, even companies that had no real earning logic at all.
Currently, interest in precious metals and mining stocks is low because they have been in a bear market since 2011. Their price is not attractive compared to Amazon, Tesla, or industrial stocks.
However, according to Garret, we do not invest in precious metals to achieve short-term gains from price fluctuations. We invest in precious metals because they have been tested over time as a hedge against recession or other crises. Precious metals act as a form of asset insurance.
The stock bubble is not the only thing we need to protect ourselves against.
Headwinds for the economy
These days, all economies around the world are deeply in debt. This is a direct result of reckless economic policies and decades of artificially low interest rates.
The cause of the 2008 crisis was massive personal debt. Nowadays, the level of household debt has returned to pre-crisis levels. However, the debt burden of governments and companies has more than doubled. Companies are more leveraged now than they were in 2008, which in itself is a recipe for disaster.
In addition, we face a serious demographic headwind as the population ages. This will ultimately culminate in a pension crisis that no politician can solve. Social tensions, an impending full-scale global trade war, and potential geopolitical conflicts add to this picture.
As a remedy for all this, Garret recommends that we prepare our investment portfolios for the worst. History has shown that in unstable times, there is no better protection than gold.
Functional insurance
Gold is a functioning crisis insurance - it has maintained its purchasing power. Currently, gold is undervalued, it is cheaper now than in 2007. Garrett's advice is that now is not the time to get caught up in market frenzy, and now is definitely the wrong time to sell your gold and silver. On the contrary - now is the time to increase positions because precious metals are on sale. That is how Garrett plans to act.
