Home Money Should you invest in gold and safe havens in a global crisis? HAMISH MCRAE

Should you invest in gold and safe havens in a global crisis? HAMISH MCRAE

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Market turmoil: the conflict in the Middle East has caused the price of gold to rise in recent weeks

Where are the safe havens? That is the question that worries investors in these difficult times.

The conflict in the Middle East has caused the price of gold to rise in recent weeks, as the metal has long been the classic place to park savings at a time like this.

Overnight on Thursday it rose above $2,400 an ounce, before retreating a bit. In mid-February she was trading below $2,000.

Market turmoil: the conflict in the Middle East has caused the price of gold to rise in recent weeks

But gold is an unsatisfactory investment. It does not produce any performance. While in the very long term it offers some protection against inflation, in shorter periods it does not.

The price skyrocketed from $1,275 an ounce in April 2019 to over $2,000 in the summer of 2020.

But then it remained stable for almost four years before its recent rise. So while gold is the asset of choice for the world’s central banks, with the Chinese being particularly strong buyers this year, it’s not really a meaningful investment for most people.

Basic products? Yes, but which ones? The most important commodity of all, oil, rose last week for obvious reasons.

But the price of crude oil, about $90 a barrel by Brent, is now lower than just before Gaza’s attack on Israel on October 7 last year.

Furthermore, how can an average investor invest in oil, other than buying shares of major producers?

The same objection applies to other products. Yes, as long as the global economy continues to grow, there will be demand for these, but other than buying the shares of the big miners (which have mostly remained stable over the past year), there is no easy way to invest.

For anyone in the UK, one form of security is owning a home, and the lesson of the last two or three years is that the property market is quite resilient.

While prices may decline for a time, there is enough underlying demand even in difficult times to stop a serious crisis. But property has its drawbacks, it is not liquid and it is not an easy investment to make extra money.

Perhaps the safest investment of all is the United States government, or rather the securities it issues. The dollar has remained strong, three-month Treasury bills are yielding 5.4 percent, and five- and 10-year notes are currently yielding 4.6 percent.

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Last week’s message from Federal Reserve Board Chairman Jerome Powell that markets should not expect an early interest rate cut further strengthened the dollar.

But even there there are dangers. Anyone who bought long-term US bonds three years ago will likely make losses, both in cash and in real terms, as prices move in inverse relation to yields.

Therefore, higher interest rates are great for new buyers, but they reduce the value of existing holdings. In any case, over the long term, stocks have consistently generated better returns than bonds. So while U.S. Treasuries may seem safer, what matters to most savers is the likely return over many years.

This brings us back to the argument for investing not in the US government, but in the companies that drive the US economy.

It may not be the best time to put money into the S&P 500 companies, but the fact is that despite a bad week for the market and all this worrying news, that index is up more than 5 percent so far of the year. . And it’s 20 percent more than 12 months ago.

Take this argument one step further. It is understandable that people want security for their savings. But it is wrong to hoard money in what seems to be a safe haven every time there is an international crisis, no matter how worrying it may be.

Instead, investors should try to build portfolios that are robust to unexpected bad news of any kind.

That means spreading risk, looking for fundamental value (as readers will know, I think UK shares are hugely undervalued) and accepting that we are human beings and will sometimes make mistakes.

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