Can you afford to stay out?

Posted | 03/11/2020 / Views | 2714
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Maybe one of the safer bets today outside the Cup is the RBA lowering interest rates and commencing Quantitative Easing.  From the AFR this morning:

“St George said it expects the central bank's "board to announce a further easing of monetary policy as the Australian economy continues to crawl its way out of the recession.

"We expect the key policy rates - the cash rate; the three-year target bond rate; and the Term Funding Facility rate - to be cut from the current rate of 0.25 per cent to 0.10 per cent.

"In addition, we expect the Exchange Settlement Account rate will be lowered to 0.01 per cent, potentially exposing financial institutions to negative interest rates in times of excess liquidity.

St George said it also expects the RBA will introduce a bond-buying program for bonds of maturities beyond three years. "The key uncertainty is whether the RBA announces a specific quantity of bonds it will buy as part of this program or whether it will leave it open ended.

"The market is betting for a fixed quantity of at least $100 billion. We believe the RBA will be better off having greater flexibility and leaving its bond-buying program open ended but it may not want to disappoint financial market participants. These are uncharted waters, so either option cannot be fully ruled out."

The question therefore remains, can you afford to stay out of investing in Gold, Silver and Crypto currencies?

As real interest rates are returning little or nothing for cash and inflation runs higher and higher, cash is worth less each year unless invested in positively appreciating assets.

With most main stream investment channels ie. equities, bonds and cash struggling in the current environment due to the well-publicised challenges, gold/silver/crypto assets are appreciating in value giving investors an opportunity to stop the negative flow of funds away from their portfolios. Baruch Silvermann of the Smart Investor wrote, “the constant barrage of economic meltdowns ranging from the dot-com bubble to the COVID-19 crisis, along with questionable government programs such as Quantitative Easing have bought precious metals to the mainstream”.

Subsequently, anyone not investing in these channels are now beginning to consider them, therefore, leading to more demand than ever before. This asset class gives investors an alternative to be involved in, greater diversification of their portfolios and hedge against the current turmoil we’re engulfed in, increasing potential returns and/or decreasing risk. As Tyler Gallagher of Regal Assets says, “Investing in real assets — including commodities, timber and precious metals — provides a reliable hedge against inflation and volatility in the equities market”.

Whatever outcome the coming months and years bring in relation to where interest rates are heading, monetary stimulus deployed and how much debt we pile into is anyone’s guess.  What is universally agreed is the historically performing assets of the past such as equities, property and bonds are not necessarily going to be the performers for the near future…..can you afford to not be involved?