The odds of a recession in 2019 or 2020 are on the rise. Economists predict that there is now a 25% chance of a recession in the next year, up 5% from January. The likelihood of a recession in the next two years is 40%, and economic policies such as trade war with China are not helping the odds.
With a recession on the way, it may be time to start thinking beyond stocks when it comes to your portfolio. A recession can do a number on your portfolio, but there may be some surprising solutions. Gold could be your lifeboat in the coming storm. Few investments are better at weathering bad news in the economy than gold.
You need to think about gold as an investment, not just expensive jewelry. Consider some of the ways in which gold acts as an investment.
#1 Tangible Assets
Gold is unique in that it is an asset you can hold in your hand. Gold comes in the form of coins and bars and it must be physically stored. Unlike stocks and bonds which are paper (or digital) representations of your capital investments, gold is literally solid.
#2 Liquidity
Gold can be turned into cash wherever you are in the world. It’s the original international exchange of value and, until the 1970s, it was gold-backing that lent the U.S. dollar its international dominance. The most readily accepted form of gold is the bullion-grade 1 oz. gold coin. Bullion-grade refers to purity: .99 purity (24 karat and higher than most jewelry) is the easiest gold to exchange.
#3 Low Third Party Risk
You can further reduce the risks of owning gold by going with non-bank, fully-insured storage. The issue with bank storage is that your gold then becomes a deposit and you a depositor. In the event of another financial crisis on the scale of what the world saw on 2008, governments could introduce bank bail-in legislation (where they haven’t already), a regime in which banks that need a cash infusion take it from the investors and depositors rather than from taxpayers. Depending on how bail-ins are implemented, even small savers could be affected.
#4 Other Gold Risks
Every investment comes with risks, and gold is no exception. It pays to pay attention to gold prices before you buy. Have they been climbing rapidly in recent days, weeks, or years? That could be a sign of overbuying and an imminent price plummet.
It’s ultimately impossible to predict exactly which way gold prices are going to go depending on market factors, but use some common sense before you invest. Gold is riskier if a bull market has been raging for years already. Gold prices tend to fall due to speculation overvaluing it, and growing opportunities on the stock market.
#5 Why Gold Is Good
Gold is a good asset for investors who need to reduce their risks. Gold is a way of protecting your wealth from stock market jitters, global uncertainty, and inflation. In countries in crisis, gold can be a lifeline for families when inflation renders currencies worthless. For U.S. investors, gold provides some portfolio balance. Diversification leads to a stronger portfolio.
Gold can play an important role in your portfolio. If you’ve always treated gold as jewelry, it’s time to start thinking about how you can use it as an investment vehicle.