Precious Metals and European Crisis

Precious Metals React Badly to European Crisis

In times of economic uncertainty, a wise investor would hedge their market bets with silver and gold in hopes of a future payday. They would either buy precious metals in bullion and coins or invest in stocks related to precious metals, like mining stocks. Historically, precious metals are considered "safe havens" when the stock market may be fluctuating wildly, but recently that wisdom has been turned upside-down with the European debt crisis. If the same adage still held true, then precious metals investing would be on the rise and prices would be rising. But, instead, the market is showing baffling signs that investors are actually dumping their precious metal holdings due to scares over the Eurozone.

Dollar Strength

Investing in precious metals is still a good move in the long-term, but in the short-term the dollar's strength in comparison to the plummeting euro has investors thinking twice. This makes the dollar a very attractive alternative to gold and silver as it provides a high degree of liquidity, too. People who invest in silver and gold have experienced large gains over the last decade and many are taking their profits now and then converting to cash and holding for a little while longer. In the short-term this type of profit-taking is a good idea, but in the long-term you may see these same investors re-investing in precious metals as the price drops to make them attractive buys once again.

What Happens in Europe Spreads

With global economic dynamics, investors react much more quickly to news overseas. They understand that a crisis that appears to be far way, in economic terms is right next door. There are so many new ways to play the market that even when precious metal commodities are the safe haven of choice, investors seek out new options that will leverage gains and reduce risk to their investment portfolios so that they can profit quickly and bank their wins.

- Guest Author (Jen)

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