U.S stock market plunged 252 points on 6 January 2016 as falling oil prices and North Korea nuclear tests combined to send the Dow Jones to below the support level of 17,000. This marked a terrible start to the year 2016 as investors are spooked by global issues affecting economic growth.
U.S stock market
The bright spot is that U.S data continue to support the notion that U.S job market is improving and that the U.S economy should be able to withstand these headwinds. However, investors should be cautious and heed the warning from the stock market. Dow Jones had reached an incredible record level of 18,200 in 2015 and is showing signs of peaking. As there will always be cycles of ups and downs in the stock market, existing investors with substantial stock holdings may want to take profits or cut losses on their stock investments now. After all, if the major correction did arrive this year, the opportunity to offload shares will be a premium given the widespread panic selling.
Chinese stock market
Over at the other side of the Pacific Ocean, the China stock market presents a scarier situation. On the first trading day of 2016, China’s stock market dived 7% after data indicated weakness in China’s manufacturing sector. This triggered the circuit breaker and caused trading halt. Today, the trading was halted again when the stock market fell 7% and wiped trillions off in stock valuations.
Investors should be wary of the Chinese stock market because it is not just a matter of the Chinese economy slowing. Investors in China have basically brought a whole new meaning to the definition of market bubble. According to TrueWealth Publishing Singapore, more than 40 million households in China opened new trading accounts within a year. This is a frightening number and reflects the investment fervour in China. Many Chinese investors obviously thought that the stock market offers the fastest way to build wealth and make money. They have no idea and nil experience in handling with market corrections. The worst thing is that many are speculators using leverage to push share prices up, only to end up incurring heavy losses when the market crashes.
Many investors end up losing money in their stock investments and paying “school fees” to the stock markets because of their lack of investment knowledge. Under current climate, fear among existing investors is building up and it is difficult to control the emotional pain of seeing your hard-earned money being wiped out within minutes. On the other hand, contrarian investors who have avoided investing in the stock market for the last 5 years should be watching the show with glee because stock markets’ corrections represent opportunities of buying stocks on the cheap.
Flight to safety
In the midst of the stock markets’ havoc, gold prices surged as expected due to investor’s flight to safety. Gold price increased from USD1060 to almost USD1100 within 4 days of the opening week of the year. Whilst it is still premature to say that gold is out of the wood, it should be noted that global investors still deem gold as safe haven during crisis times. This status has never changed and probably will not going forward.
Gold trading hub
In my previous article, I wrote about how to invest gold in Singapore. Singapore government is determined to make Singapore a precious metal trading hub. There is no licensing requirement for the importing and exporting of precious metals, thus ensuring free flow of gold and silver. It has also developed infrastructure to support the growth of the ecosystem. The Singapore Freeport has been set up in 2010, with cutting edge security and conveniently located near to the Changi Airport. There are also a suite of secure logistic providers operating vaults and providing metal handling services. In addition, Metalor has set up a gold refinery in Singapore recently, thus adding vibrancy to the whole precious metal ecosystem.
Is it the right time to buy gold?
The perennial question often asked by investors is when is the right time to buy gold? It is true indeed that there is a steep decline in gold prices since 2013 but then again, to succeed in investment, you have to adopt a contrarian approach. What this means is that you have to be greedy when there is fear and accumulate gold bullion on the cheap. Investors should start to diversify their portfolio and start to buy physical bullion from leading bullion dealers in Singapore.
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SG Wealth Builder