As an investor/speculator, thinking about how your assets perform during times of global political stress is a must. I realize that no one wants to wish for unfortunate things to happen globally, but the historical reality mandates otherwise. Increasing focus on the Russian military mobilization in response to civil unrest and the ousting of Ukrainian President Yanukovych should cause investors to ask whether or not they are truly diversified. Investors should seek out those investments that are truly non-correlated to the kinds of turbulence we are currently seeing in Eastern Europe.
Like many others, I have recommended physical gold and silver as a real asset and as a potential hedge against inflation. But the gold and silver price, in whatever form you try to gain exposure to it, also tends to hold up better than many other investments during times of political stress or crisis. Many asset managers refer to the precious metals– especially gold– as a “non-correlated” asset, meaning that gold and silver have a good chance to move in the opposite direction from other risk assets like longer-term bonds, stocks, or real estate. The most recent example of this outperformance came during the height of the global financial crisis, from 2006 to 2009, where gold and silver were among the best investments to own when stocks and real estate crumbled in value. If you spend any amount of time researching the history of these metals, you also find that during other periods of war, be it the U.S. Invasion of Iraq, the Soviet invasion of Afghanistan, or the Yom Kippur War of 1973, the precious metals served their purpose as portfolio stabilizers, or as non-correlated assets.
So far, global markets are unconcerned regarding events in the Ukraine. We will have to see for how long that is the case. But when thinking about your portfolio, remember that unconventional, “alternative” investments like gold and silver often do provide true diversification, in addition to some degree of peace of mind.