Saturday, April 08, 2006


'How Will Metals Fare In Coming Recession'

A reader suggested the prospects for precious metals in a recession for a weekend topic. "This needs to be a weekend topic; it keeps coming up."

"Specifically, 'How will precious metals fare in the coming recession / depression?' with the sub-topic 'What other safe-havens are there and how would they rank?.'"

Another shared this, "Its not clear to me that metals would ashed value along with everything else in a post housing recession. I could just as easily see capital flight out of equities and *in* to precious metals."

'I think the big question is: where is the safe haven? A mixed currency basket? 'Recession proof' equities? Oil?"

Another had a quote, "What's that quote I always see at PrudentBear? Oh yes...'Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.'"

One reader took a quote from an article posted yesterday. "I love this quote: 'Some economists think the blow would be tolerable because most people could stay in their homes and wait for price recovery.'"

"ASSuming they could, you can be assured they won't be spending a thin dime on SUVs, plasma screens and stainless steel appliances!"

Here's an article about a mutual fund.

'The Van Eck Global Hard Assets Fund is outperforming all but one natural-resources mutual fund by investing in oil drillers, zinc producers and gold miners.'
"[The Van Eck Global Hard Assets Fund] placed about half of its $395 million in energy and 26 percent in metals. The remainder is in real estate, paper and agriculture."

So it has up to 24% exposure to RE and RE notes. Since most of us on Ben's blogs believe RE will decline for years, this fund does not seem well suited for those beliefs.
To me, "How will metals fare?" is a relative question. I'd say "Better than the stock market, the bond market, the housing market, and the dollar (obviously)."

What I want to know is, what are the best safe havens in a recession?
Here's a Financial Sense article on the Fed and recession.
la fiatwoman,

An under-considered safe haven is mobility. When the oil/RE bust hit Texas, there were still jobs. But one had to move; sometimes out of state. And people locked into a home loan were in a squeeze, because nothing was selling and prices had fallen.
any recession is going to be because of, in part, the huge deficits we have. so the dollar has to adjust, that should mean gold/silver and commodities should adjust. I see deflation in US stocks, bonds and housing.

you never know, past downturns have brought down everything.
Ben, that Financial Sense article is very good. It has facts in it that will make for good conversation with two of my buddies.

The mobility factor is a good point. I got my home loan off my back, but now I'm stuck with a rental lease. However, 12 months of rent on this house is less than what my old house value has dropped by already.

John, with your scenario, it sounds like all investments should be in foreign currency and bear funds/shorts. Is this what you are doing?
I don't know about anyone else, but with the Bush administration apparently planning a war with Iran, I'm loading up on more gold. I guess all the rumors about prevention of the oil bourse might end up being true after all...unbelievable.

IMHO Currencies are looking especially dicey right now. We're seeing some wobbles in NZ and Iceland -- and who knows what that spells for everything else. Euroland has big problems moving forward, and of course, the dollar looks positively terrifying. Betting on the Yuan? I don't know enough yet. Anyone?

But most importantly -- the right answer will be the answer that the crowd runs to. And IMHO that's gold. Gold isn't just a safe haven, its a "user friendly" safe haven. People get it.
I have a hard time believing PMs will drop significantly.

These days there's simply way too much "money" in the world vs. a fairly limited supply of bullion. Plus, all the major economies are inextricably intertwined, so no one currency is immune to a downturn.
Just my opinion, but if we have an orderly (if there is such a thing) stock market correction, I think we'll see some selling off in gold. Might last a couple months, but it will rebound due to it's safe haven nature.

If the stock market blows up in tandem with a derivatives crisis, all bets are off. No clue how that one plays out.
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Don't make a big deal about Iceland currency.
It is less than 300 000 people country.

Don't you consider it a little chilling (no pun intended) that such a little country's currency can have such a big impact?
I guess I haven't noticed any impacts.
Enlighten me, please.
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