The last few weeks have been very crazy to say the least. Not only because of the natural and unnatural disasters going on around us, but also in the stock markets. The Canadian markets have been soft and are slightly negative for the year, while the U.S. and the International markets are doing well (with the odd correction here and there!).
One anomaly in the market that has affected both Canadian Equity funds as well as Precious Metals funds is the price of Gold, Silver and other precious metals. Since there has been significant price reductions in these commodities, the funds have also lost a fair bit of value to say the least.
The reason this in an anomaly is that the reasons to own precious metal funds remains intact. The increasing debt of the U.S. and other major economies continues to be a concern. There are many that do not believe the price of the commodities will recover, while just as many experts believe there is significant upside to owning funds holding the commodities or the producers or suppliers to the production of the commodity.
Why hold these types of funds at all? At times like this that is a great question! Having these positions in the portfolio help to hedge (insure) against the unlikely event of another major correction due to the excessive debt of countries around the world. So when the event seems even more unlikely the price (or premium) of the hedge goes down as there is less perceived risk. When the risk presents itself or becomes more likely the price of the hedge goes up. These price changes are not small when they happen either way.
When people or other governments lose faith in the paper money of their own country or other countries, the demand for physical assets such as precious metals goes up. More demand usually means higher prices, and vice versa.
Hold steady for now.
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