Gold and silver are the best hedge against a falling US stock market

What can you buy as an investor that will reliably rally as stock markets fall? Treasuries certainly but bullion generally offers the best downside hedge against a falling stock market. Just look at the advance in gold and silver prices this January as global bourses tanked.
Longer term studies of the secular bear market in US stocks since 2000 show that whenever there is a cyclical rally in shares then gold suffers and when stocks decline the gold price benefits: 2008-9 was the exception to this rule and not the precedent it is generally held to be.
Bull versus bear
The big difference of course between gold and US stocks is that with bullion you are in a secular bull market and not a bear market like stocks. Consider the mug-punter who has stuck with his US stock portfolio since 2000 in an S&P tracker fund. He or she has basically gone nowhere. Let us hope dividends have really compensated for inflation in that time. Stock pickers may have done better but it is tough trying to grow against the tide. Better to have the tide with you.
The bullion investor over that time is up 400 per cent, even after the recent correction from 550 per cent. You need to look at the bigger picture and think outside of the US-equity box, not remain trapped in it. Now where do we stand today with stocks versus gold? The latest cyclical, as opposed to secular, bull rally in stocks is 4.9 years old. The previous one died aged five. We’ve also seen the spike of 2013 as the typical climax of a bull run in any financial market.
Vix still low
January saw a minor correction in share prices. But the Vix volatility index at 21 is still well below the 40+ level that usually marks the top of a correction, even a mild cyclical one. The case for a major downturn in stocks has seldom looked stronger, though the longer we wait the more stupid the naysayers like us look.
Throughout the past 14 years gold has demonstrated a strong inverse correlation to US stock market ups and downs. If you think a stock market sell-off or crash is in the works then you should be thinking about stocking up on gold and silver now, and not waiting for a confirmation of the correction.
Don’t stay trapped in the secular bear US stock market for yet another cyclical correction. Jump ship to a rising asset class. Yes gold will also one day spike like stocks last year but it is just not there yet. Where is the spike on the 14-year gold chart? Show me the spike!
To leverage up on the gold price advance then gold stocks are currently excellent value and silver always outperforms gold to the upside. The ArabianMoney investment newsletter has out top ideas on how to leverage up against a rising gold price without actually going into debt
Source:Bullion Bulletin

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