My number one investment right now

It’s interesting to see news stations reporting that online brokerage accounts have gone up since the markets tanked.

Well funnily enough, I actually contributed to that increase.

Last night, I helped my flatmate of 15 months open his first stocks and shares ISA.

Big Thursday night plans, you ask, sardonically. Fair point, fair point…

It’s mainly an exercise to get started, get interested and get learning. Who knows if now is the time to buy. Depends on what you’re buying, I suppose.

It’s down to him to choose what he wants to invest in of course, but one of the first things he asked me about was why I’m always going on about gold.

If you’ve been following my writing for a few weeks now, you’ll have noticed that it’s been a bit of a jumble.

Some days I feel more optimistic than others.

But overall, I would summarise my view like this. There’s plenty to be worried about, but also a few things to be positive about.

One thing cuts through all that though. If you’d asked me six months ago, six weeks ago or six hours ago, the answer would have been the same. Gold is worth your time, now more than ever.

In part because at times like these, it’s very emotionally relaxing, having a decent chunk of gold. It helps, at a psychological level, to have the confidence to invest in smaller, more exciting growth stocks (clue: renewable energy and clean tech). That’s one way of diversifying.

Nassim Taleb often talks about a “Barbell Strategy”, owning mostly very low-risk assets, and placing a small percentage in very high-risk, high-reward investments.

I don’t go all the way on that front, but it’s a useful concept and worth incorporating to some extent.

Gold can be a psychological as well as a financial hedge in turbulent times.

But I also think the outlook is very good, for two main reasons.

A caveat, I always think it best not to rely too much on forecasts. Much less valuable, and much more likely to be wrong, than simply trying to work out where we are today. Not that that’s an easy endeavour either, mind you.

One thing that seems true today is that we are at a precarious position in terms of market sentiment, and the economy. The rally from the lows of a fortnight ago have been slightly overdone, and so we’re not quite as far from the highs as might be appropriate.

Another view that is common today is that inflation is unlikely, or dead.

People saying inflation is dead makes me think that gold, the number one asset to hold against inflation, might be undervalued. That it’s more likely to appear than people think. The short-term stress of the market only makes that case more urgent, if not stronger.

If I had to give my most likely prediction (giving it at best a 25% chance of coming true) then I would say the March crash was phase one.

Next will come a slower, more measured period of tough returns, as the reality of bankruptcies and lower earnings hits home. Then, for me, comes inflation, and I saw a nice quote about it yesterday.

Borrowing from Tim Price’s excellent The Price Report:

As SocGen strategist Albert Edwards observes,

Within a few years I have not one scintilla of doubt that helicopter money will be so successful that CPI inflation will return like a long-lost relative. But, like a distant uncle we only see every now and again, we will have forgotten just how out-of-control he can become after a few drinks, and woe betide anyone who tries to stop him in his tracks.

On Wednesday I advocated finding out about gold as a hedge in case the optimistic view is wrong. Today I urge more strongly that the pessimistic case might be right.

Gold has two avenues to thrive, both of which have better than a 50/50 likelihood in my book. One short term, and one long.

Further declines in markets? Gold functions as a safe haven, at least mitigating losses and hopefully making some decent gains of its own. Short term hedge.

Inflation in the coming years? Long-term beneficial for the metal that keeps its value, even while all fiat currencies are losing theirs, to mis-quote Mr. Kipling. Long-term asset.

There’s plenty of ways to access the benefits of gold’s resistance to market crashes and inflation. Physical ownership, exchange-traded commodities, major miners, minor miners, miner ETFs and more. It’s an entire investment world on its own, and not the easiest to navigate. But at times like this, worth getting your head around for sure.

Which leads to this link, where you can find out more about gold and precious metals investing, from bullion to Barrick.

Happy learning, and happy investing, I hope!

Kit Winder
Investment Research Analyst, Southbank Investment Research

PS Here is a little noticed fact, and a small cause for optimism (and investor interest!).

The UK’s greenhouse gas emissions fell in 2019, for the seventh year in a row, and to levels 28% below 2010 levels. Read more here.

And also, following Wednesday’s article by the way, here is a chart of the global growth rate of the virus, up to the end of March. The growth rate tells us the percentage increase in cases per day, and through testing and early contagion, it rose to around 14% growth per day. But since 24 March, it seems to be falling slightly. Obviously, we can’t read too much into this, but a possibly ray of hope for improvement, if not for an end to this madness.

Source: Remi Tetot on Twitter

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