Gold Can Insulate Your Capital Against The Coming Bear Market
Keen-eyed economists and historians will tell you that the month of October has a habit for conjuring up the dark and dangerous side of the stock market. So far 2018 has been no exception to this seemingly gloomy and troublesome trend.
It harkens back to past selloffs and economic crises such as the plunge of 2008, Black Monday in 1987, the Panic of 1907 and the infamous Black Tuesday of 1929 which started the Great Depression! If you take a quick look at international stocks and bonds you will see a nearly $5-trillion selloff just in the month of October 2018.
Of course, today’s global marketplace now means that every country and economy is linked in multiple ways. Problems in one economy can quickly cripple multiple markets faster than a single 24-hour news cycle can ever hope to cover. In 1929 there were people who went to bed one night as millionaires and woke up the next day looking for a tin cup to rattle!
With the massive global sell-off we’ve seen in October 2018, it’s worth taking a closer look at the dark cloud roiling on the horizon.
What’s The Cause Of The Coming Storm?
Like most ominous storms, the darkness often builds up before the sky goes black. In February of 2018, there was a very large stock market sell-off, which was essentially linked to smart investors taking massive profits ahead of blood they smelled in the water. Knowing market trends as they do these big-dogs sensed that the market was nearing its ceiling and moved to maximize their profits.
At that time, it seemed like a short-term trend which encouraged small investors to start sinking more and more capital into the stock market. This was largely based on a perceived fear of missing out. As with past economic crises this has been a clear and present indicator that the true top of the equity markets has been reached.
Unfortunately, this is also a classic sign that a long-term bull market is coming to an end, and the scales are about to take a deep and fearful plunge!
As the darkness draws closer and closer, we can see even more signs of imminent danger. First, the United States Federal Reserve’s has recently increased interest rates, which has caused the USD index to rise. This has also served to weaken other fiat currencies in the international market environment.
We also see major tremors in international Emerging Market Economies that have vast amounts of dollar-denominated debts that they are compelled to service with their own fiat money. The stronger the dollar is, the more of their own currency they will need to pay off their existing debts.
This trend lends itself to the economic volatility of a currency collapse in countries such as Argentina, India, Iran, Turkey and others. These massive moments of international instability further disturb the global economy and can lead to massive and sudden losses in the stock market.
The volatility index, also known as VIX steeply increased throughout October of 2018. It is essentially a of overall market volatility. At the end of October it currently sits at the maximum value of 25. Yet just a month earlier it was hovering around 10. This means that market volatility has increased by nearly 150%!
It can further be argued that a temporarily rising dollar generates greater global risks than the VIX can possibly account for. While many countries have started to make the move away from the dollar, there is still no fiat currency is safe from long-term global economic instability.
Holding onto some cash also provides you with the kind of liquidity you need to later jump into a new investment once the market eventually lurches toward recovery. Holding onto some physical cash is always helpful, so long as you have another source such as gold or a cryptocurrency to help insulate you against more large-scale instability.
The global Fear & Greed index is also a good indicator of global market conditions. In the third quarter of 2018 this metric sat in the range of extreme greed. Yet, in recent weeks it has started to loom closer to now plunge into extreme fear.
What Can You Do To Protect Your Capital
Financial crises like this on often strike quickly with and with the force of an economic nuclear bomb! So just like the old atomic bomb testing videos of the 1950’s, you don’t want to be the guy with a cheap pair of goggles who has mouth is blown open by the detonation, and you sure don’t want to be person sitting in the old farmhouse as the blast wave blows it into a pile of sticks!
You want to be the guy, sitting back safe in the fortified bunker a few miles off wearing a nice comfortable uniform, sipping on a cup of coffee and watching the awestruck chaos through a pair of binoculars.
Understanding Your Options
It’s important to act fast in times like this. Just like those nuclear bomb tests, you don’t want to be the guy running for the bunker hoping to get in before the door is shut. You want to be the guy who’s already got a comfortable seat waiting for them!
At a quick glance real estate might seem like a viable play, simply because it’s tangible. Unfortunately, the current real estate market is grossly overvalued and also likely to suffer a volatile crash or correction as the economic storm starts rolling in.
When you’re looking at a stock market crash of this potential magnitude, it’s hard to find any safe refuge, fund, or bond to park your capital. Medical stocks, cannabis stocks, and things like alcohol company stocks might provide a little insulation, but you’d still be investing in something that isn’t fully under your control.
Fixed income may be relatively stable. However, they are extremely conservative and most likely will not beat inflation at the current rate trends. It’s also worth noting that they are also linked to government-backed funds, and it is possible for this economic storm hits with such force that the government might need to borrow funds on the international market to just to sustain them.
Bitcoin and other cryptocurrencies are also one potential option for securing your capital. However, they are still subject to international market instability. Being crowdsourced, cryptocurrencies also rely on member participation to maintain their long-term value, which could potentially see a decline depending on new market trends.
Gold Is The Safest Bet!
If we take another historical look at the Great Depression, we see many people were straight up taking rolls of cash and hiding them in their mattresses or stuffing them into walls. To this day demolition contractors tearing down old houses from that era will occasionally find bundles of dusty money behind the plaster lath.
Now before you start searching the internet for Do-It-Yourself Drywall Repair, or boning up on your mattress stitching skills, you should take a closer look at good old-fashioned gold!
Gold has been prized by humanity since the dawn of civilization. Possessing physical gold is always nice for easing your anxiety in tough financial times. It’s safe, secure, worth its weight, and if you want you can hold it in your hand! Or in this case, securely locked away in your private safe!
Another strong option to consider, if you’re looking for a quick way to protect the capital you have invested in your existing portfolio, is to shift some into gold mining stocks. Whenever the market suffers a major hit like the coming one, the price of gold tends to go up and gold miners of every stripe press their nose harder to the grindstone. This leads to more gold production on the international marketplace, while the price per ounce also tends to remain high throughout the long-term economic crisis.
Goldmoney is also something to consider. It is designed to provide you with custody and liquidity of precious metals such as gold, as well as silver, platinum, and palladium. You can use it in a tradeable form for a very small premium and minimal monthly storage fees. In some locations you can even physically touch the precious metals in a secured vault for added peace of mind.
As needed the precious metals can be quickly transferred to anyone else with a Goldmoney account. If you prefer it can also be loaded onto a pre-paid debit card, allowing you to make safe and secure daily transactions.
It’s also worth taking a little bit of a closer look at gold’s relationship to market volatility. Even when the stock market is going strong, gold shows only a minor decrease. Over the past six years, as the bull market started to develop, US stocks increased by nearly 90%. During this time the price of gold only went down by roughly 26%.
Yet if we look back at the last economic crisis of the so-called Great Recession, we see that between January of 2008 and December of 2011, the S&P 500 dropped nearly 15%. During this same period of time the price of gold rose by just over 86%! This long-held historical trend demonstrates how gold is less likely to suffer in bull market conditions while also being able to thrive in the kind of bear market conditions we see on the horizon.