We are witnessing a horrible run in stock markets across the world. January was terrible, with all leading global indices ending in red territory. China's benchmark Shanghai Stock Exchange slumped about 25%. The tumult has continued in February as virtually every sector, from biotech to energy and from banking to tech-has struggled.
With stock markets getting hammered on daily basis, it will not be surprising to find majority of investors' portfolios may have taken a big blow.
Nouriel Roubini, noted American economist, in a recent interview ruled out that the global economy is in danger of confronting 2008 financial crisis-like situation.
Nonetheless, there are not many good signs for a healthy global economy. The oil market is witnessing a carnage, emerging markets are in doldrums as a result of sliding commodity prices and capital flight, and China is slowing down. German economy, Europe's growth engine, faltered significantly in December as industrial production lost momentum.
The U.S. economy, by and large, is chugging along nicely but ambiguity over the Federal Reserve's next round of interest rate hikes and anxiety over the run up to Presidential elections, should keep markets under tight leash.
Against this backdrop, it is very likely that market participants will have a very low risk appetite. As a result, the market sentiment could remain bearish for most part of the year.
Still, investors can safeguard their capital and minimize risks by including safe-haven assets such as precious metals ETFs in their portfolios. For instance, consider, Physical Precious Metal Basket Shares Trust ETF (NYSEARCA:GLTR). The ETF, in the backdrop of the meltdown in precious metals markets as a result of stronger dollar, slumped about 20% in 2015. The situation, however, has changed dramatically this year. The ETF is up about 10%, year-to-date, performing almost on par with gold and silver and way better than other assets.
The investment objective of this fund is that the shares should reflect the value of physical gold, silver, platinum and palladium in the proportions held by the trust.
As of February, physical gold constitutes about 60% of the portfolio, silver accounts for about 28% of total assets, while platinum and palladium make roughly 12% of total assets.
Barring palladium, which is still struggling, all other precious metals are expected to perform reasonably well this year.
Gold, as I discussed earlier, stands to gain for many reasons. Firstly, the slump in oil prices amid supply glut would keep investors wary of riskier assets and create demand for safe-haven bets. Earlier this month, gold vaulted to a 7 ½ month high as investors moved their money towards safer assets. Besides, there is growing speculation that the pace of rate hike will much slower than previously anticipated. Lower interest rates would encourage investors to shift their money towards non-interest yielding assets such as precious metals. And finally, although, physical gold market has relatively low influence over prices than paper gold market, drop in mining activities, due to years of low-price environment, should also propel gold prices.
Silver, meanwhile, should continue to march ahead, as the white metal, typically tends to have a positive price correlation with gold.
Platinum performed badly last year. It sunk about 27%. However, it has begun the year strongly. Gaining about 4.75%, year-to-date, the metal should perform better this year as the demand from the automobile sector is likely to remain robust. Also, as I discussed earlier citing the World Investment Council report published in September, platinum mining activities in South Africa are expected to halt for next two years. This is because; an extended period of low-price environment has forced miners to drastically cut down CAPEX.
Disclosure: I/we 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.