The Commodities Survival Kit Guide: Gold, Silver, Timber, Farmland, Stamps, & Antique Guns (SLV, GLD)
Jared Cummans: The threat of a massive economic meltdown has had investors talking ever since the 2008 recession. Each person has their own plan for how they would survive another stock market crash, and what they would do to keep their heads above water. Most people feel that the likelihood of this happening is relatively low, but there are still others who note the wide variety of problems in today’s world and prepare for the absolute worst. For those looking to hedge against a stock market downturn, we outline five-must buy commodities to help protect your portfolio [see alsoFour Commodities To Buy Before Roubini’s “Perfect Storm”].
This is the most obvious choice on the list. These two precious metals have long been safe haven assets for investors all over the world as they not only provide a hedge against inflation, but tend to outperform other assets in times of market turmoil. Since the U.S. abandoned the gold standard in 1971, this precious metal has seen a meteoric rise in value; gold prices have appreciated over 500% since the year 2000 alone.
It should be noted that silver’s price is typically more volatile than that of gold’s, making it a potentially more rewarding (or damaging) investment. For those looking to make a play, you can bet like the billionaires with the SPDR Gold Trust (NYSEARCA:GLD) and the iShares Silver Trust (NYSEARCA:SLV). Still others are only comfortable with physically owning precious metals themselves, which is certainly another viable option, but one that takes a bit more research and care [see also Three Reasons Why Gold Is Overvalued].
At first, timber may seem like an unorthodox idea, or a commodity that has little investment potential, but both of those assumptions would be false. Others may ward off this asset given the recent weakness in global housing markets, but this isn’t true either. In fact, timber’s performance has been very strong throughout its history. The price of timber has risen by an average of 5% per year for the past century, and those gains include strong performances during some of the worst markets in U.S. history. “During America’s last major inflationary period – from 1973 to 1981, when inflation averaged 9.2% – timberland values increased by an average of 22% per year” writes Larry D. Spears.
Since the beginning of the 20th century timber has outpaced the S&P 500 and has risen by approximately 15% each year since 1987 (save one bad year during the U.S. housing crash). During the Great Depression, when stocks fell roughly 70%, timber investments soared by more than 200%. Moving forward to the most recent recession, the S&P dipped more than 35% in 2008 while the wooden commodity actually gained 9.5% [for more commodity actionable ideas subscribe to our free newsletter].
Rising populations in booming emerging markets across Asia and Latin America are driving food demand now more than ever. The result: farmland prices, both at home and abroad, have appreciated greatly in recent years as agribusiness has expanded tremendously to meet the needs of an ever-growing world population. Buying a plot of land requires a bit more hassle than going to the jewelry store, although doing your homework could pay off big time.
Historical data reveals the appeal of this timeless hard asset; between 1987 and 2004, farmland prices averaged annual increases of 4.8%. What’s even more exciting is that prices have gone on to appreciate even more rapidly in recent years thanks to record-low interest rates and steadily growing demand for commodities. Farmland prices have averaged annuals gains of 15% between 2004 and 2008, showcasing the ability of this asset class to deliver uncorrelated returns to broad equity markets. Experts have expressed their concerns that land value increases of this magnitude are unsustainable, although they have also acknowledged that increasing food demand from all over the globe is a key factor that would prevent a major collapse [see also 50 Ways To Invest In Agriculture].
Stamps aren’t quite as shiny as gold and they certainly can’t compare to guns in terms of utility. Nonetheless, this palm-sized investment is a worthy consideration for those looking to tap into the vast universe of profitable collectibles. Although stamps appear to be perhaps the most fragile product on this list, they are not much different from other hard assets; stamps derive their worth from a shared psychological belief that they are in fact valuable. Simply put, stamps are a non-productive, collectible asset, much like gold bars and silver coins.
In fact, recent studies show that returns on collective stamps could rival precious metals over a long enough timeline.Research shows that over the period 1900-2008, stamps have generated a nominal annualized return of 7%. This is a rather remarkable feat that few collectibles can attest to. Historical evidence also suggest that stamps feature a return pattern that bears a close resemblance to the yellow metal; stamps are a worthy hedge against rising prices, and much like gold, they can also serve as a partial hedge against unexpected inflation [see also The Ten Commandments of Commodity Investing].
No, these aren’t for your own protection from some kind of catastrophic global phenomenon. Instead, antique guns present themselves as a viable investment. Purchases of guns, both commercial and collectibles ones, have been steadily on the rise, even surging in recent years as fears of tightening gun-control laws have intensified. While semiautomatic weapons are quite uncommon across most portfolios, these products have steadily appreciated in value over the years, a feat that few asset classes can brag about. Just like every other commodity, the price of guns is influenced by supply, demand, as well as speculation.
The collectible firearms market is also steaming with activity. Scared by the volatility in the stock market after the recent crash, a growing number of investors have turned to classic firearms as a means of preserving their capital. For instance, valuations for handcrafted English shotguns have climbed by around 3%-5% per year, making this a rather safe bet by equity market standards. After all, guns are an investment which you can enjoy (responsibly), and thus the potential for capital appreciation makes them all the more attractive.
Written By Jared Cummans From CommodityHQ Disclosure: No Positions.
CommodityHQ offers educational content, analysis, and commentary on global commodity markets. Whether you’re looking to speculate on a short-term jump in crude or establish a long-term allocation to natural resources, CommodityHQ has the information you need.