Contributor, Benzinga
August 2, 2022

The Russian invasion of Ukraine has roiled both the oil and natural gas sectors of the energy market. In the U.S., runaway inflation has caused the Federal Reserve to raise interest rates significantly, and it is rumored to be planning further increases. If instability has you tempted to dump your paper money, keep reading to find out about liquid alternatives.

Precious Metals

If you’re going to look for a liquid alternative, you don’t just want to exchange your paper currency for another asset that could depreciate just as fast. That’s why precious metals, specifically gold, have always been a favorite liquid alternative. Gold is not only a resource in finite quantity, it has a number of potential uses.

Although most people associate gold with jewelry, it also has a great many industrial applications. Gold is also very desirable as a conductor of electricity, which makes it an important component of computer chips and other tech-oriented products. 

This scarcity and the increasing number of industrial uses for gold has seen its price per ounce on a steady upward trend for the last 30 years. In 1993, an ounce of gold was around $250. Today, it’s worth roughly $1,800. That’s not only an increase in value of nearly 500%, but gold has shown remarkable resistance to stock market crashes and economic downturns. 

That may be why gold has been people’s first refuge when things get tough. After solid growth through the 1990s and early 2000s, the value of gold skyrocketed after the great recession of 2008. As the economy stabilized, it gave back some of its gains but then began taking off again when the pandemic struck. 

It’s not just gold either. Platinum and silver are both on a strong upward trend over the last 30 years. Although there have been dips in all precious metal prices, their net values are still up. More importantly, precious metals like gold, platinum and silver are negotiable in any country in the world. Regardless of what language is spoken where you are, if you have gold to sell, you can liquidate it easily. 

Precious Stones

The De Beers® Diamonds advertising campaign that diamonds are forever is one of the most successful advertising ploys in history. Prior to that campaign, diamonds were not an essential part of wedding rings. Then, almost overnight, De Beers connected the size of a diamond in a wedding ring with how much a man loved his bride to be. 

Since then, diamonds have gone from something that only the richest of the rich wore to a progress marker on the upward mobility ladder. The size of a “rock” is now right up there with the kind of car you drive and the neighborhood you live in as bona fide status symbols of middle or upper-middle class life. 

However, even before that happened, diamonds have been a negotiable item. Going all the way back to antiquity, jewelers and traders could hold a little bag of diamonds that was worth a small fortune. Depending on the size and quality, selling even one diamond could net you enough cash to support yourself for months or even years. 

Much like gold, diamonds are also negotiable and easy to liquidate anywhere in the world. People also sell diamonds “off the books” in the notoriously strong underground market to avoid taxation (although Benzinga doesn’t recommend this action). Regardless of whether you sell diamonds on the open market or “off-market,” they are highly sought after, which makes them an appealing liquid alternative. 

Sports Collectibles

Sports collectibles are an almost uniquely American liquid alternative. As the baby boomers retire and Generation X hits their peak earning years, sports memorabilia from their childhood has become very popular. Auction prices for vintage baseball cards from players like Mickey Mantle and Honus Wagner can easily hit six or seven figures. 

In fact, sports collectibles have become so popular that there are even online platforms where you can buy a piece of your favorite sports memorabilia. However, the market for sports collectibles is one of pure luxury. Unlike diamonds and gold, sports collectibles have no industrial usage applications. 

The value of sports collectibles is always subject to fluctuation. A Willie Mays rookie card is certainly worth more today than it was when it was taken out of a package of bubble gum 75 years ago, it’s not certain that you will see its value appreciate above what you paid for it. 

Additionally, most American sports collectibles are not as sought after outside of the U.S. as they are in it. Also, popular sports collectibles are frequently counterfeited.  While you may want to buy some of them and they can be liquidated easily, sports collectibles may not be your best liquid alternative. You’d be well advised to not put too many eggs in that basket.

Fine Art

Fine art, such as paintings and statues has always had a strong appeal, especially to the wealthy. When it comes to the works of many great artists, appreciation is almost guaranteed; especially if the artist has passed away. That property automatically makes any existing works scarce, which only increases their value.

So, if you’ve got the money, you can definitely buy fine art and be reasonably sure that it will appreciate in value. However, you’ll find several important caveats. First, you have an extremely limited market. Second, you have to protect yourself from counterfeits. 

The popularity of fine art has turned creating high quality fakes into a multi-million dollar industry of its own. People go to school for years to become art experts, and in spite of all this education, even the experts can be taken in by an elaborate fake of sufficient quality. So, if they can be fooled, you certainly can too. 

Cryptocurrency

It’s no secret that cryptocurrency has been taking a beating of late. In fact, some people are calling this a “crypto winter” and predicting even further losses. Even Bitcoin, the original cryptocurrency, recently fell below $20,000, which was an important indicator of the overall health of the cryptomarkets. Although it has climbed back above the $20,000 threshold, Bitcoin is still down from its pandemic peak of $60,000.

If you got into cryptocurrency ten years ago, you’re still making a solid profit with it trading at just below $20,000. However, the current price of Bitcoin, and many cryptocurrencies are way off their all-time highs.

It doesn’t necessarily mean the death of cryptocurrency is imminent, but it does mean that the crypto market is incredibly volatile. The crypto market may well shoot back up, but it’s certainly on a downward trend right now. So, if you’re looking to hold some as a liquid alternative, your money may not be much safer here than it would be in regular currency. 

On the plus side, cryptocurrency is secured through blockchain technology, which means counterfeiting cryptocurrency or stealing it from its rightful owner is a very difficult thing to do. The only question for crypto holders is whether the blockchain will be securing liquid profits or an empty crypto wallet for them. 

The Biggest Drawback with Most Liquid Alternatives

Aside from the danger of counterfeiting, which is possible with gold, diamonds, sports memorabilia and art, every liquid alternative aside from cryptocurrency faces two significant drawbacks with:

  • Storage
  • Security

The very fact that the most popular liquid alternatives (precious metals and gold) are  negotiable anywhere in the world makes them prime targets for theft. They are basically untraceable which means you have very little recourse if someone takes them from you. 

That also means you will need to store them securely, preferably in a hardened facility somewhere with state of the art anti-theft features. Facilities like that cost money. So, the longer you hold your assets, the more you’re going to have to pay to keep them safe. 

The Last Word on Liquid Alternatives

First of all, take a deep breath. Even as the fears of a recession mount, the U.S. dollar is trading at roughly 0.95 against the euro, which is a multi-year high. As down as you might be on the dollar, pound or euro, dumping all or even most of your money into liquid alternatives may be a little premature. 

Liquid alternatives are not foolproof. And the most popular ones are very expensive. So, before you go all in on in anticipation that the world’s paper currencies are on the verge of collapse, the dollar and the pound have been around for hundreds of years. It may be a good idea to diversify your spare cash into a few liquid alternatives, but you should still proceed cautiously, just as you would with any other investment.

About Eric McConnell

Eric McConnell is an alternative investment writer interested in rare collectibles, fine wines, art and sports memorabilia. He developed his love for sports during his childhood, where in addition to being an aspiring professional baseball player, he was an avid baseball card collector and reader of the Robb Report.

As is the case for many aspiring young sluggers, Eric’s baseball career came to an end the first time he encountered a pitcher capable of throwing 90 mph and a wicked curveball. However, his delight in the finer things of life never waned, and after a career in real estate, Eric branched out into writing, where he joined Benzinga as an alternative investment writer in 2021.

Although he covers breaking news in all areas of alternative investments, Eric’s favorite subjects harken back to his childhood days of reading the Robb Report and collecting baseball cards. He has a passion for writing about fine art sales, whiskey auctions and sports memorabilia.