In April 2020, GoldNews.com.au came under new management, articles published before this time, such as the below, may not reflect the views or opinions of the current GoldNews.com.au team.

Looking back into time a sharp investor would have observed nervous investors moving to add inverse exchange traded funds or contra investments which are basically investments that move in the opposite direction of the stock market. This was affected by most seasoned investors to reduce the volatility of their portfolio because when the market indexes move in one direction the inverse exchange traded funds move the other way. This scenario can be observed between the Pro-Shares Short S&P500 ETF under the NYSE-Arca: SH and S&P 500 as the S&P 500 lost 3.8% of its value, Pro-Shares Short S&P500 shares gained 3.7% this transpired in December 2015.

Although one is able to theoretically remove portfolio volatility with inverse ETFs, you also wipe out the possibility of enhancing your return on investments meaning that investors have no choice but to engage in some sort of market risk if at all they intend to generate some portfolio return. There is however a better way to employ the same strategy, but with a different portfolio all together, believe it or not, gold, silver and most other precious metals are in essence contra-investments. Although they are not sure-fire contra investments, they are to a large extent imperfectly related to stocks and in most cases they are negatively associated with stocks much like inverse ETFs.

Gold does indeed reduce portfolio volatility to an acceptable extent while simultaneously generating returns on its own accord that in most cases complements the returns from stock market investments. Gold’s track record for producing an average return of 7.7% annually for nearly half a century attests to that fact.
However, averages are averages and the truth is that gold has not been a good asset to own over the last few years until January 1st and since gold has went up by nearly 2 % and given the current global economic conditions, gold has once again become a haven along with its other precious metal counterparts such as silver, palladium and platinum.

Everybody knows that the value of gold in most case scenarios rises during financial uncertainty and heightened geopolitical situations which can be observed everywhere on the planet thanks to the upheavals in the Middle East, North Korea’s defiant stance, China’s economic slowdown, Donald Trump becoming president, ISIL and a whole load of other elements that could actually destroy financial systems which are already breaking apart at the seams. Nevertheless, many are unaware that many sovereign states have already kick started their contingency plan in the event that the financial systems of the world does breakdown, most have started to hoard gold by the tons. Countries producing gold have significantly reduced exports and even as they are exporting, the buyback volume is much larger.

China, Russia and India are buying up most of the gold and their fears are not unfounded, as a matter of fact they are just taking the necessary steps that sooner while everybody else procrastinates, because when everything does hit the fan (which it will eventually) gold prices will sky rocket into the heavens by which time it will be too late for most of us.

GoldNews: Robert