As Yogi Berra, the famous baseball player, said “It’s tough to make predictions, especially about the future”. In Mervyn King’s book, “The End of Alchemy”, he says that when he was the Governor of the Bank of England, when giving evidence to the Treasury Select Committee he would sometimes respond to questions by saying “I don’t know, I don’t have a crystal ball”. This outraged many members of Parliament who thought it was his job to have an official crystal ball in order to tell them what the future held. Any attempt to explain that he could not forecast the future was met with disbelief.
We don’t have a crystal ball either. Following the response by central banks in 2009 to print huge amounts of money in an attempt to kick-start the economy after a liquidity melt-down we are now in uncharted waters and there is a great deal of uncertainty regarding which way markets are heading. Whatever the market conditions, our objective is to provide our clients with realistic expectations about the returns they can hope to achieve for different levels of risk.
The main equity markets have fallen from their recent highs of 2015. It is unclear where we are in the economic cycle and whether we should expect a period of falling or rising asset prices. We have had a bull run in certain stock markets, which has stalled. The bull run may resume. It may not. We may be in a correction phase before markets rise again; we may be at the start of a longer downturn. But as long as we think that a significant downturn is possible we should take steps to provide some degree of protection against it.
Protecting your portfolio value
There are number of ways you can protect your portfolio without selling everything. One is to buy physical gold as an Insurance policy. If stock markets do fall further it seems reasonable to assume that this would increase investors’ interest in gold as a “safe haven”. In the 2008 market crash, which also saw gold sell-off initially (as investors looked for liquidity), the yellow metal still finished the year up 2% whereas the FTSE 100 Index finished down 28% and the S&P 500 Index fell 40%.
Regardless of its “insurance value” gold may now have started a new bull market trend which could eventually see the price rise beyond its peak of US$1900 achieved in 2011. If that assessment is correct, investing in gold will provide capital growth. So far this year gold is the best performing asset class, with the price up 16% in dollar terms (12% Euro, 20% GBP).
Growing your portfolio
When stock markets are either going down or drifting sideways we need to find sectors that can outperform. One sector which appears to fit the bill is the gold mining sector. It looks as though gold stocks have ended their major bear market of the last four years, in which we saw average losses of around 70% (not a good time to be invested!) Already since 19 January this year the HUI Index of gold producers is up over 100% and if past gold bull markets are anything to go by there should be plenty of upside yet to go.
At the forthcoming seminar we are holding on 24th May, I will be expounding on these views and looking at ways that you could invest in the gold and precious metals sector. Colleagues from our investment team will also be on hand to answer questions on how investing in both gold and gold miners complements our multi-asset investment philosophy and can help form part of a balanced portfolio. We hope to see you there.
This article is for information and illustrative purposes only and is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
Roger Hardaker is a Financial Consultant with Felicitas Management Group. He holds the UK Diploma in Financial Advice and the UK Investment Management Certificate. He has extensive experience of investing in the precious metals sector.