Gold is having quite a past-year run, and while the debasement trade still has legs to last another year or maybe even a while longer, I’d argue that investors shouldn’t treat the “safe-haven” asset as one that is free from downside risks, especially over the near term. Trading gold can be a risky move, as we found out a month ago, when gold plunged while silver completely cratered in what was a historic meltdown for the precious metal markets. Indeed, safe assets are safe and lead to good sleep until they aren’t.
While gold remains a wonderful asset to own, at least in my view, even as it seemingly goes against the teachings of the great Warren Buffett, I would treat it like a steady stock.
Perhaps like a dividend-paying utility stock, which, while steadier than most other equities, can have its volatile moments as well. For the most part, I remain a gold fan, especially as some of the crypto crowd moves into the trade as they seemingly abandon the “digital gold” thesis following the latest slump in crypto assets.
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Gold can drop like a rock, too!
That said, if gold or silver can enjoy a market-beating gain (or a doubling in a year), you can bet that such a parabolic rise can pave the way for an implosion that’s just as fast. Now that gravity has kicked in for the metals, I think it’s time to put one’s contrarian hat on by nibbling away at weakness. Of course, dip-buyers would hope for a sudden, sharp bounce, especially in gold, but one should be prepared to ride out the wave of choppiness through the year with incremental buys over the months.
Buy a little here, maybe half an ounce or so of your favourite bullion ETF, and be ready to do the same next quarter if you’ve got enough saved up. In any case, the silver trade seems to be melting down, and while gold prices are still above their year-to-date highs, I’m not sure if gold will follow silver’s lead or if it’ll show relative resilience by marching higher. At the end of the day, gold is the safety asset; silver is the industrial metal that tends to be far more volatile, especially following its boom years.
While I can’t time the gold markets, I do think gold is a better asset to pursue here, even though silver may be viewed as a bigger bargain now that it’s 38% off its highs. For a diversified portfolio, you want less volatility and more resilience, not added volatility and severe boom-and-bust cycles akin to the ones experienced by crypto assets.
The big warning for gold (and silver)
With the so-called Warsh washout (the metals plunge in response to the new U.S. Fed chair pick) in the rearview, I do think it’s a time to think about nibbling on fallen gold bullion and mining stocks, but cautiously and gradually. Why?
Michael Burry, the man from the film The Big Short, thinks the Bitcoin (CRYPTO:BTC) plunge could lead to a forced sell-off in gold and silver. If liquidity runs dry, even these real assets can take a hit.
Eventually, it’ll be a buying opportunity. Just be ready for a ride! Burry is a genius investor, and his warnings are to be considered, especially if you’re wandering into an asset class that’s impossible to value. The big question is whether the cascade into gold and silver is over. I’m not so sure it is, given silver’s latest move lower. In the face of said risks, I prefer SPDR Gold Shares (NYSEMKT:GLD) and bullion ETFs over the miners, at least until the dust settles.
