Investing in Gold: How Do Financial Bubbles Burst?
When saving for retirement, it is important to have an inflation hedge and diversity in your portfolio. One of the most important reasons for this is if anything happened to the economic landscape, such as a financial bubble bursting. If you have some of your assets tied up in the stock market, it is important to understand how financial bubbles burst and how to protect yourself. Keep reading to learn more about how financial bubbles burst and how to secure your retirement by investing in gold.
Understanding Financial Bubbles
According to Investopedia, the term “bubble,” in an economic context, generally refers to a situation where the price for something—an individual stock, a financial asset, or even an entire sector, market, or asset class—exceeds its fundamental value by a large margin. Because speculative demand, rather than intrinsic worth, fuels the inflated prices, the bubble eventually but inevitably pops, and massive sell-offs cause prices to decline, often quite dramatically. A speculative bubble is usually followed by a spectacular crash in the securities in question.
Bubbles generally follow five stages, which were first identified by American economist Hyman Minsky:
- Profit Taking
- Panic – According to Forbes, while some late-to-the-game speculators may have held out previously—in hopes that an asset’s price might go back up—by the time the bubble reaches its panic stage, that’s no longer tenable. Instead, the fervor to buy an asset has been replaced by a panic to sell. The plunge in prices quickly wipes out profits and encourages more panic-induced selling.
Categories of Bubbles
Also according to Investopedia, asset bubbles can be broken down into four basic categories:
- Stock market bubbles involve equities—shares of stocks that rise rapidly in price, often out of proportion to their companies’ fundamental value (their earnings, assets, etc.). These bubbles can include the overall stock market, exchange-traded funds (ETFs), or equities in a particular field or market sector—like Internet-based businesses, which fueled the dotcom bubble of the late 1990s.
- Asset Market bubbles involve other industries or sections of the economy, outside of the equities market. Real estate is a classic example. Run-ups in currencies, either traditional ones like the US dollar or euro or cryptocurrencies like Bitcoin or Litecoin, could also fall into this bubble category.
- Credit bubbles involve a sudden surge in consumer or business loans, debt instruments, and other forms of credit. Specific examples of assets include corporate bonds or government bonds (like US Treasuries), student loans, or mortgages.
- Commodity bubbles involve an increase in the price of traded commodities, “hard”—that is, tangible—materials and resources, such as gold, oil, industrial metals, or agricultural crops.
Investing in Gold to Protect from Economic Crises
Investing in gold is one of the best ways to secure your retirement and protect yourself from a bubble burst. One of the main reasons people invest in gold is because its value goes up as the value of the US dollar goes down. If you have some money tied up in one of the four categories above and the bubble bursts, you won’t have to say that you lost everything. Gold will be there to protect you and give you diversity, easy-to-access liquid cash, and peace of mind.
For example, if you have all of your money invested in a real estate empire and the real estate bubble bursts, then all of your money has now become worth much less than it used to. It will take a long time for you to sell off your assets to recoup any of your money, and it takes hiring experts, paperwork, and much more. However, if you invest in gold, you can be happy knowing that the value of your gold has risen and the bubble burst won’t hit you nearly as hard.
Protect Against a Bubble Burst with Priority Gold
If you have most of your assets tied up in one of the four bubble categories above, it is time to consider investing in gold. Investing in gold will protect your savings and secure your future, and we can help. Priority Gold is one of the most trusted precious metals dealers in the United States, with a BBB A+ Rating, AAA Rating with Business Consumer Alliance, and 5 Stars Rating with TrustLink.
We specialize in providing precious metals investment services with Security, Liability, and Great Convenience for customers. Our team is committed to helping to streamline their precious metals purchases at a fair price, selecting the right precious metals portfolios, and meeting their important financial objectives.
We offer Free Storage for qualifying Gold & Silver IRA accounts, a fast & easy gold buying process, and smooth IRA Transfer. And gold shows up on schedule. Priority Gold guarantees the highest customer service standards, which come with honesty, professional conduct, and an Ethical Code of Business.
For more information, visit us at prioritygold.com