At times like now when stocks are taking a dive, precious metals become a much more attractive investment as an alternative to plunging equities. Between Feb. 24 and the close of trading on Monday, March 16, the Dow Jones Industrial Average (DJIA) tumbled 31%, the S&P 500 dove 29% and the Nasdaq tanked 30%, but gold dipped less than 9%.
Chart courtesy of YCharts
Investors in general should be heartened by a new federal government plan to address the economic hit caused by the coronavirus with a $1 trillion stimulus proposal that would include measures to put money into the hands of consumers. The spending package also would include support for virus-afflicted companies, such as $50 billion in assistance for commercial airlines struggling mightily amid the public health crisis that has decimated demand for travel, and up to $500 billion to boost small businesses and address other critical needs.
Federal Stimulus Lifts Outlook for Overcoming a Stock Market Crash
Only extraordinary U.S. government monetary and fiscal policy intervention lifted the outlook from the current stock market crash when the major U.S. equity indexes jumped on Tuesday, March 17. The Dow Jones Industrial Average rose 5.2%, the S&P 500 climbed 6.0%, the NASDAQ jumped 6.2%, gold gained 0.6% and silver hopped 1.8%.
The Federal Reserve helped restore confidence among investors on March 17 by reestablishing a Commercial Paper Funding Facility (CPFF) to support the flow of credit to households and businesses to meet daily operational expenses. The Treasury will provide $10 billion of credit protection to the Federal Reserve in connection with the CPFF from the Treasury’s Exchange Stabilization Fund (ESF).
“The commercial paper market has been under considerable strain in recent days as businesses and households face greater uncertainty in light of the coronavirus outbreak,” the Federal Reserve announced. “By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, this facility should encourage investors to once again engage in term lending in the commercial paper market. An improved commercial paper market will enhance the ability of businesses to maintain employment and investment as the nation deals with the coronavirus outbreak.”
The unusual moves occurred after the U.S. Federal Reserve Bank’s policymaking arm, the Federal Open Market Committee, had not succeeded in stabilizing the economy and shoring up the market with two big rate cuts this month. Most recently, the Fed announced a full 1% federal funds rate cut late Sunday, March 15, to a range of 0% to 0.25%.
However, the market sank by historic levels anyway on Monday, March 16, when the Dow Jones Industrial Average (DJIA) slid 12.93%, the S&P 500 dropped 11.98%, the NASDAQ nosedived 12.32% and the Russell 2000 fell 14.27%, while gold barely climbed 0.14% and silver slipped 0.40%. Nor did much help come for the floundering market from a March 3 half-percentage-point federal funds target rate cut to a range of 1% to 1.25% due to the spread of the coronavirus worldwide.
Gold has been the most resilient precious metal investment lately and it has been gaining interest among investors. Silver has been lagging in the past year, but could end up as the best value among the two precious metals for anyone buying now who has the patience to wait.
Chart courtesy of YCharts
Gold and Silver Offer Alternative Assets When a Stock Market Crash Occurs
The bull market in gold has been developing for a while, said Rich Checkan, president and COO of Asset Strategies International, a full-service tangible asset dealer in Rockville, Maryland. He and other asset dealers currently are seeing soaring demand for bullion investments.
For the long term, no matter whether the form of bullion purchased is a bar, a coin or a certificate, investors can buy gold and silver now, with each appearing ripe to rise with the weakening stock market, Checkan continued.
The Fed’s reduction of rates to zero, with a real rate of return less than zero, is “bullish for precious metals,” Checkan told me. “There is no opportunity cost to owning precious metals” when interest rates are zero or less, he added.
In time, the additional liquidity in the market will cause prices of real assets like precious metals to appreciate in dollar terms, Checkan said.
Gold and Silver Bullion Offers Investors Safety in a Stock Market Crash
One way to invest in gold and silver is through bullion, such as coins that are legal tender and produced by government mints, bars that can be made either by governments or private mints and “rounds,” which describe coins made by private mints that offer no legal tender status, Checkan said.
Gold and silver, real estate investment trusts (REITs), investment-grade corporate bond funds and fixed indexed annuities are among the investments usually preferred by investors who seek to own assets that are not highly correlated with major stock indexes. The importance of having investments that tend to climb when equities fall cannot be overstated during times, such as now, when major U.S. stock indexes plunge.
People searching for a stock market crash lift can use precious metals for protection amid the ongoing crisis caused by the deadly coronavirus, also known as COVID-19. As of March 17, the number of cases of coronavirus worldwide reached 194,496 with 7,940 deaths, according to Johns Hopkins University. In the United States on that date, 6,362 cases had been reported with 95 deaths.
A Stock Market Crash Risks Employment, Paying Expenses and Coronavirus Recovery
Precious metals and stocks both could benefit from help to the economy, businesses and workers through the Fed’s commercial paper initiative announced at 6 p.m. EDT on March 17 to support the credit needs of American households and businesses by establishing a financial-crisis era Primary Dealer Credit Facility (PDCF). The Fed explained the credit facility will let primary dealers support “smooth market functioning” and facilitate the availability of credit for businesses and households.
Earlier on March 17, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency teamed up to take two actions to support the U.S. economy and allow banks to continue lending to households and businesses. They are:
- A statement urging banks to use their resources to support households and businesses; and
- A technical change to phase in, as intended, automatic distribution restrictions gradually if a firm’s capital levels decline.
Gundlach Likes Gold as a Glittering Source of Value for Investors
“Gold is at a record high in terms of euro and many other currencies,” said Jeffrey Gundlach, the chief executive officer of DoubleLine Capital, on CNBC during a March 5 broadcast. “I feel it is almost a certainty that gold is going to go to an all-time high versus the dollar.”
Gundlach advised investors to look at alternative assets versus financial assets in this present environment. Gold and silver fit the description.
For the short term, Checkan is seeing value in purchasing Perth Mint Certificates (PMCs) and Perth Mint Depository Distributor Online (PMDDO) products. One big reason is value, he added.
“Demand for bars and coins is off the charts,” Checkan said. “Wholesalers are out of material.”
Investors interested in bars or coins can order them, but deliveries are delayed and premiums, also known as the fees, to pay for the precious metals are comparatively “high and rising,” Checkan said.
Precious Metals Traditionally Provide a Stock Market Crash Lift
“For example, you could buy 1-ounce Silver Eagles currently at a 30% premium and not know when they will be delivered,” Checkan said. “Or, you can buy Perth Mint Certificates in Silver Bullion for 2.25% above Spot Silver… with no shipping and no storage fee.”
The latter looks to be a “great” opportunity, Checkan said.
“The world is not short of gold and silver,” Checkan told me. “The world is short of fabricated bars and coins.”
With the PMCP and the PMDDO, the mint offers an online portal that allows investors to manage their precious metals from any location, at any time of day, Checkan said. As a result, physical gold and silver can be owned without the “exorbitant premiums” and delays in delivery, Checkan added.
“Prices are low, premiums are a tiny fraction of the alternative, delivery costs and delays are non-existent,” Checkan said. “Delivery times are immediate to the vault at Perth Mint, and premiums are just 2.25% and 1%, respectively, for the PMCP and PMDDO.”
Rich Checkan, president of Asset Strategies International, of Rockville, Maryland
Van Simmons, who heads David Hall Rare Coins in Santa Ana, California, said many non-gold investors have always complained that gold doesn’t pay interest, but in today’s market, there is no interest, and holding gold as real money seems to make more sense compared to putting it a bank. It also is difficult to predict how things will turn out over the next few weeks or months, but gold and silver offer real assets that should hold their value, if not appreciate in such uncertain times, he added.
Gold Offers a ‘Yellow Brick Road’ to Safety in a Stock Market Crash
Gold has been an investment that Jim Woods has recommended in his advisory services to help investors profit during the past year. He has been recommending SPDR Gold Shares (NYSE:GLD) in his Intelligence Report service as an easy way to buy and sell exposure to gold, but it recently has been volatile along with the market.
Chart courtesy of www.StockCharts.com
Dr. Mark Skousen, who leads the Forecasts & Strategies advisory service, also likes GLD. He and Woods both also have recommended Toronto-based Franco-Nevada Corporation (NYSE:FNV), a dividend-paying company that owns royalties and streams in gold mining and other commodity and natural resource investments. FNV hit Skousen’s stop price in Forecasts & Strategies to preserve a 24% gain, despite its recent slippage in the up-and-down stock market.
Chart courtesy of www.StockCharts.com
Gold has remained a safe-haven store of value for thousands of years, and it will continue to serve in that role during today’s global economic scare, Woods told me. Amid the highly volatile market due to coronavirus risks, the “shiny stability” of gold is a tempting and rational investment, he added.
Paul Dykewicz speaks with Jim Woods about current investment strategies.
A Stock Market Crash Lift Comes from Protecting Assets
With global interest rates sliding toward negative territory and significant inflation seeming elusive, gold offers a viable place for investors to put at least a portion of their money as a hedge against market turmoil, said Hilary Kramer, host of a national radio program called “Millionaire Maker” and head of the GameChangers advisory service.
“It won’t make any money 95% of the time, but when Treasury debt doesn’t even pay 1%, you aren’t exactly sacrificing big returns,” said Kramer, who also leads the Value Authority advisory service. “Pay a little bit for security. The SPDR Gold Trust (GLD) is the basic version, tracking gold’s movements, or lack thereof, without giving you the right to own the physical metal. It’s all just paper in the long run. If you want the weight and stability, buy a few ounces of the physical metal and keep it in a safe place.
“You can always sell it and convert it into spending power if needed. Everything else, from the mining stocks to other precious metals, is a little more advanced. Start with those few ounces as part of a balanced portfolio.”
Investors need to keep in mind that precious metals such as gold and silver do not offer the kind of 100 percent protection bank deposits provide through the Federal Deposit Insurance Corporation (FDIC), up to $250,000 for each person per bank. As the following chart shows, gold and silver have underperformed the market for the past 10 years.
Chart Courtesy of YCharts
Bob Carlson, who also leads the Retirement Watch advisory service, advised that if investors have yet to buy gold, they may want to wait for a correction or at least a pause in the rise. Gold has appreciated significantly in the past year and the market’s current wild fluctuations make it a challenge to forecast the direction of various assets right now.
Carlson, who also is chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets, told me it is a good idea to own some gold when central banks are easing monetary policy and indicating that they’re comfortable with higher inflation, as they have been since late 2018.
Bob Carlson answers Paul Dykewicz’s questions during a recent interview.
A stock market crash lifts the outlook for gold and silver bullion, but investors need to be prepared for the volatility that often accompanies such situations. For those willing to monitor the prices and values of gold and silver coins, bars and rounds to find the best deals, diversification through shiny precious metals can be obtained for those seeking to hedge against further stock market drops.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is the editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. Endorsements for the book come from Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Dick Vitale and others. Follow Paul on Twitter @PaulDykewicz.