The precious metals sector is roaring higher in 2022 fueled by the Russian war in Ukraine, skyrocketing crude oil prices, a sinking stock market and inflation at 40-year highs.

As investors turn to precious metals as a portfolio risk diversifier, store of value over the long-term and a hedge against crisis – you may wonder – what’s the difference between investing in gold and silver? Before we highlight three differences, let’s take a look at the performance numbers. The precious metals sector has rocketed higher in the first quarter, while the equity market has fallen into a correction phase.

2022 Year-to-date performance

Winners

Palladium         +53%

Platinum           +15%

Silver                  +12%

Gold                   +9%

Losers

NASDAQ            -16%

S&P 500            -11%

Dow                    -9%

Data as of March 9, 2022

Gold and silver are both rewarding investors with solid returns this year, with a modest silver out-performance. While gold and silver often trade in parallel, there are differences to consider.

Liquidity and Size

The gold market is one of the most deep and liquid markets in the world and is bigger than silver. This simply means it is easy to buy and sell gold at any moment in time.  In 2019, the value of the global gold market was pegged at $24.5 trillion, bigger than the $4.4 trillion silver market, according to consulting firm CPM Group. The large size of the gold market means that major players can move large positions (buying and selling), without moving the price. For anyone trading smaller positions (and this applies to most individual investors), the liquidity isn’t an issue for either gold or silver. But, gold does take the edge in this category overall.

Volatility

In general, silver is considered to be a more volatile metal than gold. This simply means it can move faster than gold, which we’ve seen already in 2022 with silver’s out-performance. Volatility can be a double-edged sword – for short-term investors looking for quick gains – it can offer faster price appreciation. But, on the flip side, it could also erase those gains more quickly too.

Diversification

Both gold and silver bullion offer investors diversification properties – especially as they are both “hard” assets, versus “paper” assets like stocks, bonds or ETFs. However, gold again has the slight edge here over silver, as the latter is more connected to the business cycle. In addition to its value as a monetary metal, silver is widely used in manufacturing, electronic and construction. When industrial demand slows as economic growth weakens, that can tamp down demand for silver.

Meanwhile, gold is a long proven investment portfolio risk diversifier, in large part because gold has nearly zero correlation to movement in the stock market, according to a 2015 Journal of Managerial Finance research paper.

How to Measure Value

The gold/silver ratio is a time-honored method for investors to measure the relative value of these two precious metals. The ratio simply reveals the number of silver ounces needed to buy one ounce of gold. A high ratio is generally viewed as a signal that silver is undervalued relative to gold. That is what we’re seeing now.

Current Ratio: 76 oz. silver = 1 oz. gold

Historically, readings above 65 signal that silver is undervalued and is a strong buy signal for the metal. Silver continues to offer a great value to investors.

The Bottom Line

Gold recently scaled the $2,000 level, touching a new all-time high at $2,051 an ounce. Silver trades above $26 an ounce. Both precious metals are in a strong bull market cycle and offer opportunity for investors to protect and preserve their wealth. If you are exploring adding more protection to your portfolio, consider acting now before prices move even higher.

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The stakes have reached new heights. As Putin puts nuclear-deterrence forces on alert many are hoping the planned talks between Ukraine and Russia yield progress.

In an effort to hamper Putin’s invasion, the U.S. and many European countries have imposed sanctions against Russia. Recent moves directed at Russia’s central bank will dramatically limit the country’s ability to participate in the global financial system.

One key outcome of these measures is that the government will likely struggle to access their foreign exchange reserves. This would further diminish the value of the ruble. In this scenario Russian officials would need to find other ways to support their currency. Those options are limited.

This has left many people wondering what the international financial picture will look like in the coming days.

Reporting from the Financial Times suggests that the fallout might be confined to Russia and that “the direct exposure of western financial institutions to Russia is modest, partly due to sanctions imposed after its 2014 annexation of Crimea, as well as the rise of more investor-friendly economies in Asia.”

The authors explain that only 3.4% of MSCI’s emerging markets equity index is Russian-based. In the meantime, Russian citizens will face considerable difficulties as long lines form at ATMs and more people try to withdraw their funds from banks. This flurry of activity is likely to spur more fear leading to more withdraws. The result would be a run on banks.

While the most severe damage will be felt in Russia, many other countries will suffer to some degree from the recent move to ban Russia from the SWIFT international payments system. This decision will impact trade, given that Russia accounts for 10% of oil and natural gas production.

Other countries are likely to experience slowing growth and a continued rise in inflation. Production supply chains will suffer or in some cases come to a complete stop.

With so many influential factors in play many investors are uncertain about how to proceed through the fog of war. A look into the past might offer some answers.

Data from LPL Research shows that the Dow Jones Industrial Average fell by an average of 2% during 16 major events unfolding between 1990 and 2020.

Expanding the timeline offers even more perspective. The average total drawdown of the S&P 500 following 21 major geopolitical events since 1941 was 5%. Some of these events include things like the assassination of President John F Kennedy and the 9/11 terrorist attacks. The average amount of time the S&P 500 has needed to recover from those losses is just 45 days.

The road ahead is unclear but US investors should take a moment to remember that dramatic financial market movements are common during periods of upheaval. Fortunately, they are typically also short-lived.

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Gold climbed above the $1,900 an ounce level on Monday, hitting a fresh 8-month high. Investors are chasing the gold market higher, yet analysts say it’s not too late to get into this move.

Investors have long turned to gold for protection against inflation, which has erupted to a whopping 40-year high. Yet, gold also acts as a safe-haven asset and offer stability, wealth preservation in times of geopolitical stress. As the Russian-Ukraine military tensions hit a boiling point, investors are seeking safety in gold.

Concerns that an outbreak of war between Russia and Ukraine could send risky assets like stocks tumbling lower has increased demand for gold, which is prized for its stability during times of crisis. If Russia invades Ukraine, crude oil prices are expected to move higher amid Russian supply disruptions adding to current inflation woes.

Investors have rushed firmly into gold in recent weeks buying the late January price dip at $1,792.60 an ounce. Since then? Gold jumped 6.27% higher in less than a month.

Worried you missed the move? Don’t be.

“We never like to be late to the trade, but this might be one of those times when it makes sense to chase it. The precious metal, despite the move, is still trading below its spring 2021 high of $1,909.90 and could be ready to break out,” said a Feb. 19 Barron’s article.

“Investors are looking for a geopolitical hedge,” Matt Miskin, co-chief investment strategist at John Hancock Investment Management told the Wall Street Journal on Feb. 20. “The stars are aligning in essence for a gold breakout.” If the Russian-Ukraine situation worsens, it could be the trigger to push gold to a new all-time record high, Miskin said. Gold scored its all-time high at $2,051.50 in August 2020.

A February BofA Global Research report agrees. “It’s time to buy more gold especially if it breaks 1860/1880 as new all-time highs would follow,” the report said.  Gold has already pushed through $1,880 an ounce, recently trading over $1,900. The BofA Global Research report pointed to new all-time highs at $2,175 an ounce.

Gold is indeed on the move and momentum is building fast. While gold is priced and sold in U.S. dollars on the global market, analysts like to compare gold to other currencies to spotlight trends – and the trends there point higher too. Consider this: Gold hit a new all-time high last week, priced in Japanese Yen. Gold also climbed to fresh 52-week highs versus both Euro and Australian Dollar.

It’s not too late to get in on the 2022 Gold Rush, if you act soon.

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Are you making your Super Bowl plans now? While the clock is running down until game time, market historians remind us that the winner of the Super Bowl could offer clues on how the stock market will perform in 2022.

Really?

New York Times sportswriter Leonard Koppett developed the Super Bowl Indicator back in 1978. While at first this was a cheeky little theory, it has surprisingly shown teeth over the past 44 years, with a fairly impressive accuracy rate. What is this rule? Huddle up.

The Super Bowl Indicator states that the Dow Jones Industrial Average will close out the year with a positive return if the team from the National Football Conference (NFC) – or one with original NFC roots – wins the Super Bowl. On the flip side, this indicator warns that the DJIA will record losses at year-end if the American Football Conference (AFC) team wins the big game.

Looking back throughout history, from 1967-2015, the Super Bowl indicator reveals an accuracy rate of 82%. That is, indeed, better than a coin flip.

While this may be a fun statistic, Wall Street experts explain there is no real connection between who wins the Super Bowl and stock market performance.

At the crux of the matter is a simple rule: correlation does not equal causation.

Sorry to disappoint, but the Super Bowl Indicator’s past performance is simply a coincidence. Indeed, if the stock market ends the year with a loss and the Cincinnati Bengals take home the trophy on Sunday, it would be pure coincidence.

For you, as an investor, it is correlation that truly matters. And, in diversification – non-correlated assets – like physical gold – are one way you can protect your blind side.

Gold’s lack of correlation to other assets is one of its strengths in your portfolio. No- or low-correlation means, for example, that when stocks crash, gold typically climbs.

For optimal risk-adjusted performance, the traditional 60% stocks – 40% bond portfolio should be set instead at 60% stocks, 5% bonds and 35% gold, according to GraniteShares’ research. Annualized portfolio returns increased when gold was added to the portfolio.

Last month’s January stock market losses revealed how vulnerable equities are to getting sacked.

It may be time to bolster your defensive package. It’s still the first down of the year when it comes to your portfolio. There’s still time to round out your bench with diversification that is statistically significant – like increasing your allocation to physical gold.

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Inflation at 39-year highs. Stocks in correction territory. Fears about Russian military action into Ukraine. Federal Reserve rate hikes. Pick your poison. Financial markets are unraveling fast and there is panic and fear running wild on Wall Street.

After three years of S&P 500 gains in the 18-31% area (historically abnormal, by the way), the stock market is returning to reality.  The worst performing stocks in 2022 are already down almost 90%. Here’s a list.

TDH Holdings                    -89.42%

Astro Aerospace                -88.89%

Aligos Therapeutics           -76.15%

Vantage Health                  -63.41%

Gex Management              -63.33%

The tech-heavy NASDAQ composite index shed an incredible 13.5% as of late January – and the month isn’t even over yet. The S&P 500 has traded as much as down 10% for the year.

The consensus on Wall Street is that stock market losses will likely get worse before they get better – with overall S&P 500 declines stretching as much as down 20%. Are you ready for what lies ahead?

That brings us to an important quote for our times. As the famous investor Peter Lynch said: “Know what you own, and why you own it.”

One of the essential principals of successful investing is diversification – across non-correlated assets. Gold is a non-correlated asset to the equity markets, which is the key characteristic that makes it so valuable to investors looking to diversify their portfolios and protect their wealth.

Demand for gold already picked up this week as fears over military conflict between Russia and Ukraine flared. Historically, investors flock to gold during geopolitical conflict as the yellow metal performs as a safe-haven investment and holds its value when other asset classes fall.

With inflation running near 40-year highs at 7%, the value of gold is easy to see. Over the last 50 years gold has provided an average annual real return of 12.7% when US CPI exceeded 5%, compared to negative returns on average for both US equities and bonds, according to State Street Global Advisors.

Indeed, a January 25 Wall Street Journal article stated: “One asset holding up through the early 2022 market turmoil: gold. Rising geopolitical tensions in Europe and a slide in major U.S. stock indexes has sent investors rushing into the haven metal.”

Experts agree. The historic low liquidity period is ending. The Federal Reserve is going to pull back on some of its easy monetary policies that have supported the stock market’s recent rise. As the Fed pulls the easy money rug away and the stock market crumbles further in the face of raging inflation, investors who own gold will sleep better at night knowing that a portion of their wealth isn’t simply disappearing as equity prices collapse.

What do you own now in your portfolio? And, as legendary investor Peter Lynch said, do you know why you own it?

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Investors are being tested. Equities are down significantly for the year and 2022 has only just begun. High-risk speculative assets like crypto have performed even worse.

Meanwhile, inflation threatens “side line” money that investors are holding, as they wait to see how far the market will drop. As interest rate hikes loom there seem to be fewer places to invest. For most the goal has shifted from earning a decent return to merely preserving capital or minimizing losses. This chilly start to the year has many investors worried about what they’re in for over the next 11 months. Many are asking if gold can counterbalance some of the new risk that has crept into so many portfolios?

An analysis from the World Gold Council offers some answers.

Their research concluded that “adding between 4% and 15% in gold to hypothetical average portfolios over the past decade, depending on the composition and the region, would have increased risk-adjusted returns.”

The same report shows how many structural changes have buoyed the performance of gold in recent decades. For example, emerging market growth – like that seen in India and China – have broadened the group of people able to buy gold. Additionally, an increase in central bank demand has boosted gold’s performance as more nations rely on the metal in their reserves. Finally, the global financial crisis has alerted more investors to the importance of gold as a strategic asset to offset risk.

These benefits might lead one to ask why gold has not become a mainstay in retail investor portfolios. The answer might be the mania surrounding equities in recent years.

In 2015, 2017, 2019, and 2020 large cap growth stocks were the highest performing asset class. This pattern has attracted millions of investors. The problem: the music has stopped.

While 2022 is still young it seems unlikely that the high performance of growth will continue. Valuations remain high. Meeting those expectations will require even greater profits amid a backdrop of supply chain challenges.

Simultaneously, the fervor around tech stocks has fallen as recent earnings reports have disappointed. This underperformance has prompted concern because so much of the growth propelling indexes like the S&P 500 is supported by a few tech heavyweights. The five highest performing stocks have massively outpaced all others in the index. Those top five have returned 25.6% annualized over the past five years. In comparison the other 495 stocks have delivered an annualized 6.5% return over the same period. Most of these five stocks are found within the FAANG group consisting of Facebook, Amazon, Apple, Netflix, and Google.

Gold offers an degree of diversification that is disappearing from indexes. Consider that over the last half century “the price of gold in US dollars has increased by an average of nearly 11% per year since 1971,” according to the same body of research from the World Gold Council. Over the last five years gold has outperformed commodities, cash, US bonds, hedge funds, and global bonds.

Early signs of the year ahead has given investors reason to rethink their strategy and consider gold.

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