While downturn is deepning, Can Bullion be called as the Safest Investment Avenue in the current market scenerio?
No. Precious metals provide value as booth consumption goods and investment goods. The total return is the sum of the investment return and the ‘psychic’ consumption return. This means that over the long haul precious metals exhibit negative investment alpha (offset by the positive consumption alpha). The mistake that many people make is that in a growing economy, the consumption demand for precious metals increases. This makes them *appear* to be better investments. In a pure financial crisis (i.e., not a real downturn in consumption) precious metals tend to hold up well. However, in a real downturn consumption demand falls off of a cliff and investors liquidate. The same features that made them seem so attractive on the way up (i.e., positive correlation between consumption demand and investment return) now work against you. You can trade them, but the negative alpha means that you don’t want to have them as buy and hold assets. If you want to buy, wait until unemployment stops ticki
