It does not look like the outlook for stocks and bonds in 2023 is going to be favorable. Therefore, we are increasing investments in safer areas such as precious metals, high dividend stocks, and cash reserves. We anticipate that stocks will see a decrease in profits as the economy decelerates. The severity of the economic slump will hinge on the involvement of the Federal Reserve and any geopolitical risks such as China attacking Taiwan. It is possible that bonds may experience difficulty if inflation remains high, yet if there is a significant economic downturn or inflation decreases significantly, bonds could surge. The CPI has documented a considerable hike in inflation since 2020, totaling close to 8%, and it is not likely for it to jump back to 2% shortly.
The Federal Reserve began the process of raising rates in March after the Consumer Price Index increased by more than 7%, and currently the Federal Funds rate is still lower than the current rate of inflation. It is not expected that bonds will increase significantly in value unless inflation decreases or the economy experiences a deep downturn. If the American economy experiences a real downturn, the stock market could fall by at least 20%.
The figure demonstrates that a boost of the Federal Funds rate up to 6% would be a simple task for the Federal Reserve to surpass the PCE (the Federal Reserve’s favored inflation indicator). In addition, when compared with other periods of tightening, the Federal Funds rate could go considerably above 4%, potentially hitting the range of 6-8% depending on the inflation stats over the course of the next year.
Given the ongoing issues with energy prices, supply chain issues, and strong consumer spending partly stimulated by COVID-related payments and enduring job security, we do not expect the Consumer Price Index to reduce back to 4% as quickly as numerous strategists anticipate. Therefore, we are placing more weight on precious metals, stocks that pay high dividends, and higher than average money market balances, while decreasing investments in stocks and bonds.
This graph illustrates the considerable increase in the consumer price index since the start of 2021. We do not see inflation reducing quickly due to difficulties within the supply chain and lack of energy resources.
The Federal Reserve recently signalled that it was going to reduce how much it raises US interests rates by 75 basis points at each meeting, which has resulted in the US dollar weakening faster this month than any other month since early 2020 – it has dropped by 3% in trade-weighted terms. In the past, when the value of the dollar was low, gold, precious metals, emerging markets, and foreign investments generally became more profitable.
The S&P 500 has actually been pretty strong in spite of the strong tightening from the Federal Reserve this year. The price of the S&P 500 is currently 17.24x 2023 profits of $223.4/share and 18.5x 2022 S&P 500 earnings at $217.68. Given that the Federal Reserve is not being lenient and a potential recession is on the horizon, the S&P 500 may not be a very attractive investment right now, which is why we are wary of the potential returns in 2023.
If you’re retired, an individual investor, or the owner of an investment firm that’s searching for a secure approach to offset recent financial instability in the world, it’s likely you’re considering gold and other precious metals as an alternate place to store value or a safeguard against inflation.
In the past, the worth of money has decreased, and investments have fluctuated, yet the worth of scarce metals such as Gold, Silver, Platinum, and Palladium has only grown.
This article will explain to you why, how, and when it is best to invest in these valuable metals.
Recent Situations in the Global Economy
Following a period of disruption due to the coronavirus, when the global economy had begun to improve, the Russian incursion into Ukraine exacerbated the overall situation. Trading throughout the world has been impeded, which has led to inflation and increased the likelihood of stagflation.
The most recent World Bank Global Economic Prospects report claims that the global market expansion rate for 2021 will fall from 5.7 percent to 2.9 percent in 2022, much lower than the already-diminished prediction of 4.1 percent projected for 2021 in January. It is forecasted to stay at or near that rate into the 2023-24 timeframe, without any indication of improvement.
It would be wise to consider a secure financial plan if you wish to avoid financial hardship during an economic downturn.
Precious metals such as gold, silver, platinum, and palladium have unique characteristics that set them apart from other types of investments.
Valuable metals are ideal for keeping wealth secure over the long term as a way to preserve worth. This is perfect for those who come after you, as it will remain unchanged regardless of any type of money they might use in the future.
Why Precious Metals Are the Best Investments in Times of Crisis
Proper Tangible Assets
Valuable metals can be transformed into money and can be taken wherever you go. They are not vulnerable to the danger linked to tangible assets, since they can’t be hacked or wiped out.
Has No Counterparty Risk
Physical metal can’t go bankrupt or broke. It will never default on promises or obligations. This particular type of wealth is not only kept private, but also offers a degree of anonymity.
Keeping your precious metals safe only necessitates a minimal amount of money, room, and effort to maintain. It does not take any special abilities or knowledge to buy and retain metals like gold and silver.
The pre-eminent & safest investment option
Valuable metals are viewed as the most secure speculation alternative in monetary downturns. Precious metals have been utilized as money and a method to retain value for many years and their real worth has never been diminished. In addition, investments in precious metals have a consistently high financial value and are not affected by changes in the stock market or political issues like other investments may be.
In the end, investments in silver and gold generally move in parallel with one another, producing a great economical advantage as well as a safeguard against inflation by branching out into rare metals.
What is the Market Downside?
Warren Buffett favors the Wilshire 5000 compared to the GDP for a careful assessment of stock prices. The chart indicates that stocks are being priced 28% above the norm that Berkshire Hathaway chairman Warren Buffett has characterized as his favored ratio. We think that although certain stocks are reasonably priced, we are in a prolonged recession, with stock prices likely to stay down for several years, comparable to the “down years” of 1966-1982 and 1999-2008.
I will always remember how, after the tech bubble burst in the 90s, the market results gradually decreased and opposed the prior high-yielding returns. Concentrating on success in the commodities market, together with the relocation of sectors and asset classes in the aftermath of a financial bubble could lead to a tremendous shift in returns on investments. The chart below illustrates the alternating patterns of inflationary and deflationary markets. We are currently pushing for a portfolio setup that has a greater likelihood of succeeding during times of inflation. Inflation is a big problem right now.
The CRB (Commodity Research Bureau) outperforming the S&P 500 is noticeable in the 1999-2008 era due to a growth in the ratio, which is caused by oil, gold, emerging markets, small-cap, value stocks, and international markets outperforming the S&P 500.
In accordance with the return of inflation since 2020, oil prices and resources costs have skyrocketed. Moreover, this year’s dismal stock market results match up similarly to the unimpressive performance of the S&P 500 between 1999 and 2008. The CRB S&P 500 ratio increased from 0.10 to 0.72, indicating that commodities outperformed the S&P 500 index by a total of 700% in the course of 10 years.
High Yielding Equities
We are searching for investments that provide an appealing yield and have cash flows that would be improved as the economy strengthens.
We are optimistic about oil and consider Goldman Sach’s Jeff Currie’s projected cost of $110 per barrel in 2023 to be trustworthy. Recently, Kayne Anderson (KYN) is appealing as an investment in the energy sector due to its 9.0% yield and 13.5% discount to NAV amid weakening oil prices.
We have an optimistic outlook on precious metals and natural resources and have acquired a stake in GAMCO Global Gold, Natural Resources & Income Trust (GGN). GGN ended the day trading at $3.58 with a net asset value of $3.82 (a difference of 6.2%) and a dividend yield of 10.6%. The strategy behind its portfolio management is writing covered calls, with the primary goal of generating income, while any appreciation serves as a secondary benefit.
The Templeton Fund Organization has been in charge of the Templeton Emerging Markets Income Fund (TEI) for some time. We are anticipating that this fund will be able to offer satisfactory returns in terms of both income and the rise in value due to the weakening of the dollar. TEI has a return rate of 13.4% due to its stock closing at $5.14 per share and distributing $0.042 each month. TEI’s net asset value is 5.45, indicating that the value is lower than its net asset value by 5.6 percent. The Fund plans on distributing 10% of its Net Asset Value as a dividend.
We are unsure of what direction interest rates will take, so having a closed-end fund with a desirable yield and no exposure to the stability-related risks of a bond could be beneficial in this period of risk and cost of living uncertainty.
Top Precious Metals in the Market
Investors searching for the best investment possibilities may contemplate various priceless metals, all of which offer various advantages. Investing in silver is a popular choice due to its various industrial applications. If you are looking for a way to put your money into physical gold bullion, gold stocks may be a good choice. Additionally, investing into coins or bullion made from platinum, palladium could provide diversity in your portfolio by investing into several mining companies.
Let’s know the best precious metals for investment purposes.
Known as the premier metal, this long-standing and extremely flexible precious material is one of the oldest. Gold has a regal appearance, great worth, usefulness, and durability. In addition to its characteristic roles as diverse types of jewelry and money, coins and bars, it has also been used in the production of electronic and industrial goods because of its high ductility and exceptional ability to both conduct heat and electricity.
Unlike other types of valuables, it appears that gold is not subjected to the laws of supply and demand, as there remains a consistent desire for the metal, making it a helpful asset in which to place funds. Throughout history, during periods of political and economic difficulty, gold has maintained its worth even when prices are stagnant or increasing; a phenomenon known as stagflation.
Gold, mainly used in jewelry, has been something to hold onto during times of uncertainty for millennia.
Investing News Network states that across the world, central banks possess an estimated 35,500MT of gold from all historic gold production, amounting to around 20% of the total amount. They obtained a great deal of it over the last 10 years when they became purchasers of the material. Central banks put their money into gold for various motives: decreasing potential danger, securing against rising prices, and aiding financial solidity.
Many are aware of gold being an ancient form of currency, but did you know that silver was actually more frequently utilized as a store of value all through history? In numerous languages, the term “silver” is equivalent to “cash.” For more than 3,000 years, societies have employed silver to purchase items and gold to save wealth.
Silver tends to be simpler and more secure to make use of in most circumstances. If you’re questioning what currency would remain strong in a financial downturn, silver is the most accurate response. Here’s why-
Despite gold being more valuable than silver, this makes it harder to use in hard times. The current value of a one-ounce gold coin is approximately $1900 and it cannot be broken down into smaller pieces. Although it only weighs one ounce, a silver coin is valued at around 25 dollars, which is almost the same amount one pays for their daily necessities. Additionally, silver is generally accepted and an affordable choice for spending money unlike gold, which is quite costly.
Silver is utilized for far more than simply jewelry; it is also employed in electronics and industrial applications for its impressive conduction of heat and electricity, such as batteries and solar panels, medical equipment, and the automotive sector. The requirement of silver has dramatically increased because of the investment in renewable energy sources. Silver stock prices are highly responsive to market fluctuations, but they generally move alongside gold prices.
Platinum is a metal alloy of copper and palladium. It is sixth in terms of mined metals, but its value is higher than all but gold and silver, which rank above it. Platinum is not as easy to come by as gold or silver and its rareness makes it a great choice for investing in, as its creation is limited, which will ultimately increase its worth.
Metal is used for a variety of purposes, including decoration (jewelry), industrial production (catalytic converters), coins and other financial instruments (platinum bars), airplane engines and car components (batteries), and medical technology (equipment). Platinum prices have been increasing recently because of an elevated need for luxurious items and the investment made into clean energy sources.