The Ultimate Guide to Investing in Precious Metals During a Recession
The Sahm Rule recession indicator has been triggered, signaling a potential downturn in the economy. As the yield curve finally un-inverts, investors are considering their options, including buying stocks after the market correction.
Historically, precious metals have not performed well during bear markets in stocks. However, it’s important to note that the current context for precious metals is vastly different from previous situations. In fact, the current scenario is more similar to the times when precious metals diverged from stock market bears.
Looking back at history, we can see that Gold and gold stocks trended higher during the bear markets of 1972-1973 and 2000-2002. This negative correlation occurred as Gold outperformed the traditional 60/40 portfolio, signaling a new secular bull market.
The key takeaway here is that Gold will only see significant growth once it breaks out against the 60/40 portfolio, which typically happens during a bear market in stocks. As capital flows out of conventional stocks and into precious metals, we can expect a divergence or non-correlation between the two asset classes.
It’s important to note that precious metals are currently under-owned relative to conventional stocks, which means there are limited sellers in the market. In fact, in early 2008, Gold ETFs made up only 4% of all ETF assets, a figure that has since dropped to just over 1%.
While there may be some selling and corrections along the way, investors should view market-induced weakness as an opportunity to adjust their portfolios and focus on high-quality juniors with significant value and upside potential.
In conclusion, the current environment presents a unique opportunity for investors to consider adding precious metals to their portfolios as a hedge against a potential recession in the stock market. By understanding the historical context and potential outcomes, investors can make informed decisions to protect and grow their wealth in uncertain times.