Despite the latest decline in gold prices, I believe investments in gold and silver could result in a Powerball Jackpot like return as fear returns to the market in the near-term. Well, maybe these investments will not quite reach the $500 million payback on the $2 investment that the lucky Powerball winner might be rewarded with this week, but I think it should be substantial nonetheless. Gold and silver relative securities like the SPDR Gold Trust ETF (NYSEARCA:GLD) and the iShares Silver Trust ETF (NYSEARCA:SLV) should prosper as well, along with the shares of miners.
I discussed one potential catalyst for increased demand for the precious metal asset class in my article, Real Estate for a Powerball Jackpot. In that article, I covered interest rate risk and one potential cause for higher rates - U.S. sovereign debt downgrade by Moody's (NYSE:MCO) or Fitch. Such a downgrade would combine with that already made by Standard & Poor's of McGraw-Hill (MHP) to force funds to sell U.S. treasury instruments due to charter rules. If treasuries were sold en masse' interest rates would rise and the dollar would lose value in a hurry. Capital would seek other assets in panicked fashion, including those with currency-like appeal like precious metals.
Another issue which is supportive of what I like to call mankind's natural currency is economic collapse like that in process in Europe today. The European financial crisis which started in the Southern States of Greece, Spain, Portugal and Italy, is now contaminating the EU's linchpin states of France and Germany as well. Because of the importance of the European continent on the whole, where American companies ship 20% of their exports into and where Asian interests produce substantially for, its crisis is contagious. Until now, the weakening of the euro currency has offered support to the dollar, but if reliable currency options did not exist as alternative, which is entirely possible now, it would likely be precious metals which would find forex capital investment. While such change has been steady and progressive to date, the sudden loss of another best option could exacerbate interest in limit resources of precious metals, pushing prices up fast.
One more important catalyst supports the drive of precious metals for a Powerball-like profit. Geopolitical unrest and issues like the Iranian nuclear problem threaten to destabilize global trade and the flow of goods across the globe. Petroleum prices seem the most likely to climb among commodities, should the Iranian issue progress into conflict. However, if Iranian insult were to transform into injury to its Western foes, especially in intense and/or surprising damage, then the dollar could transform from flight to quality destination into departure port rather quickly. This is a point that needs to be better understood by the market, and I'm glad to help investors to see it. It's also another reason why investors might in fast fashion, revert to the shiny metal of substance that requires no national backing to retain value.
All these issues and those unforeseen threaten to revive the gold standard always and every day, but today they seem especially threatening. In my view, demand for gold to replace the dollar and other fiat currency has helped to drive the gold price up substantially from a decade ago. Global central banks that had in the past shifted from the gold standard to the U.S. dollar are this day looking for gold again. The emergency of ETF investment securities offer the little man investment options extending beyond the metals. Likewise, investors seeking exposure to gold and silver miners, who were once forced to choose between producers like Goldcorp (NYSE:GG), can now reduce company specific risk with investments in ETFs like the Market Vectors Gold Miners ETF (NYSEARCA:GDX) and the Global X Silver Miners ETF (NYSEARCA:SIL). Gold miners, of course benefit from fatter profit margins when gold prices rise, especially when higher prices are sustained and presumed anchored. So these securities would be recommended along with the metals and ETFs mentioned atop this article.
Investors not trusting in luck and who don't play the Powerball lottery might just get lucky enough by including some of these asset class options in their portfolios today. While changes in investment values tend to move much slower than an overnight lottery windfall, events threaten that bring some investment options up to par with the Powerball. Because of the views expressed within this article, your author plans to more regularly cover gold, silver and other precious metals and relative investment securities. Thus, you may wish to follow this column.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.