Why Investments In Gold Will Pay Off

This autumn is probably going to be the last chance to buy gold and silver at bargain prices before a massive spike in prices.

A five-year regime of artificially low US interest rates is responsible for a bubble in stocks, bonds, real estate, emerging markets and many other asset classes. But can it really be said to have boosted gold prices?

Certainly not over the past three years. Gold peaked in October 2011 and silver in April of that year. Precious metal prices today are not so far away from where they stood five years ago.

Why then should a coming rise in interest rates be a big risk to precious metal prices, as some analysts argue, if they have been amongst the assets least impacted by ultra low interest rates? Surely the risk is with those assets, not gold and silver that will be the true safe havens in a crisis.

If there is really a high risk of interest rates going up, then investing in bonds will be suicidal. Lest we forget, bond prices move in the opposite direction to interest rates as an automatic function of that instrument.

What happens to real estate prices when interest rates go up? That’s a no-brainer. They go down because you have to pay more to ‘own’ a house with a mortgage over your head.

As for equities, higher interest rates might be seen as a broad indicator of a recovering economy but they are a direct cost on businesses and on the consumer’s pocket too. Stock markets almost always fall as interest rates pick up, and often do so dramatically when they are in a bubble.

So where is your least worst option? Precious metals perhaps? And when all the other major asset classes head south into, which narrowly held market will the smart money go?

Gold is often seen as an insurance policy against financial Armageddon. Yet, that is where we are most likely going
as asset bubbles meet their inevitable demise and the over-borrowed go spectacularly bust.

In 2008, gold and silver prices took a massive hit along with everything else in the huge sell-off of the Global Financial Crisis (GFC). That was unusual for such a crisis. But the bounce back came first for holders of gold and silver with some spectacular gains from the lows of the GFC.

The lesson from that crunch in financial markets is that precious metals are the best asset class to buy for the recovery phase. I think it could be much better this time around. The central banks will have no alternative but to print money on an even bigger scale and that will raise the spectre of inflation that always drives gold and silver prices higher first.

Sitting in London in August, I witnessed house prices falling, six per cent according to property website Rightmove, and reports of a surge in 30-year mortgages as the last to get on this ladder struggled to pay massive house prices before this price slump. The London property bubble burst before my eyes. What’s next?

Are you really going to tell me that holding gold is a more risky prospect at current prices than an overinflated property market or stocks? What would you rather own when staring into the great abyss? What are investors going to dump? And what will they buy next?

Gold and silver is what you should be buying as these bubbles burst. This asset class alone will hold and improve its value as everything else comes crashing down. Then you can use it to buy houses, stocks and bonds at reasonable prices.

It has happened before many times in the history of investment and market crises. You always want to buy what is cheap before it goes up in value and sell what has become expensive to buy what is cheap.

That way you will profit from the turbulent investment markets coming this autumn. There are other ways to do this too but buying gold and silver is probably the easiest and most reliable approach for the average investor.