If you don’t own bullion investments already, now may be the right time to add them to your portfolio. Bullion investments like physical gold and silver are considered alternative assets – which includes most investments that aren’t stocks, bonds, or guaranteed deposits. Investing in alternative assets isn’t for everyone, but they can play an important role in your portfolio.
Physical gold and silver are readily available from vendors like Global Bullion Suppliers. You can purchase investment-grade bars and coins from bullion dealers at any time. The same dealers will also purchase bullion investments at competitive rates determined by market factors, giving bullion a level of liquidity on par with most stocks.
#1 A Recession Could Be on the Way
Recessions can never be predicted with certainty, but there are fears that a recession could be on the horizon. The U.S. economy has had worsening job growth, and GDP growth is expected to slow even if it doesn’t contract.
Gold has historically been a safe haven asset when recessions strike. Silver is more volatile, and silver demand is largely driven by consumer demand in the jewellery and electronics markets. Gold tends to outperform stock markets as recessions drag on. As companies struggle to return to profitability, investors are attracted to safer assets like gold.
#2 Bullion Protects Your Purchasing Power
Purchasing power is a measurement of how many goods and services you can purchase with a particular unit of currency. This measurement is constantly changing because the costs of those goods and services are always changing, too. In most cases, those costs tend to rise – which is what we call inflation. In rarer cases, costs actually go down, and when this happens across broad categories of goods and services, it’s described as deflation (which comes with plenty of its own negative spinoff effects). It describes the disparity between what you could buy with $100 if you spent it 20 years ago versus today.
While cash famously loses purchasing power year after year, bullion investments are known to protect your purchasing power.
Many use bullion because it tends to maintain or even increase its purchasing power. That’s because precious metals are scarce, non-renewable resources. There is a finite amount available in the world, and it’s getting harder to mine. Conversely, fiat currency is potentially limitless, and governments simply create more money out of nothing through processes like quantitative easing. That leads consumers and businesses to lose trust in money and seek more of it in exchange for their goods and services.
#3 You Need to Diversify Your Portfolio
Portfolio diversification is an investment strategy used to reduce the risks that you could experience a significant loss in your savings. By purchasing a range of different assets, you manage your risk levels.
It’s important when you are diversifying to purchase assets that exist in different markets for maximum effect. For example, if all of your savings are invested in a single company, buying other stocks provides valuable diversification and significantly reduces your exposure risk. However, you would still have all of your savings on the stock market, making you very vulnerable to a market crash or a recession.
Bullion is a unique asset, as a commodity and a speculative financial instrument. Introducing it into your portfolio brings in a very different set of market dynamics.
#4 Interest Rates Are Going Down
Bullion is also seen as an alternative to bonds. Bonds are relatively secure assets and provide greater security than stocks. Unlike gold and silver, bonds generate interest – but not always more than inflation. When interest rates go down, interest in bullion tends to rise because the return on bonds shrinks.
#5 Uncertainty Is Making a Comeback on the World Stage
Global markets hate uncertainty. Investors want to know the kind of business environment that’s going to exist years in the future. Predictability allows them to make long-term investments in growth. For example, a company that makes EVs for the North American market is considering opening a new factory. It can open in Canada, the United States, or Mexico. When conditions are predictable, the company can determine with a large degree of confidence which of these three locations makes the most sense when it comes to labor costs, materials, and barriers to market. With the looming threat of tariffs disrupting NAFTA and trade wars between the United States and its closest trade partners, that certainty is no longer available, and the company may delay its investments. The unpredictability can hamper growth.
Trade disputes are not the only factor, either. Wars, climate change, disruptions to supply chains, and regime changes around the world contribute to investor uncertainty. These factors all contribute to global uncertainty, which is measured with the World Uncertainty Index.
Bullion can play a valuable role in your portfolio. It can counterbalance losses on the stock market when recessions hit and protect your savings against inflation and global uncertainty.
