Gold is frustrating – but it’s still worth holding
It's been a frustrating time for investors in gold. But the idea that you should always have a bit of physical gold in your portfolio and just hope that it doesn’t go up remains a sound one.
As regular readers will know, we’re long-time fans of gold here at MoneyWeek. But there’s no doubt that it can be a frustrating asset. As Dominic says in this week’s cover story, the idea of owning gold as “portfolio insurance” can sometimes feel like poor consolation for those who would rather see it (and the shares of the companies that mine for the stuff) shooting the lights out. I can sympathise – I still hold gold mining funds in my portfolio in the expectation that they still haven’t seen their highs for this cycle, but for all my bullishness, I’d be deluded not to acknowledge that if I’d sold them a year ago I could be buying back in at about a third less now.
Yet the insurance argument – that you should always have a bit of physical gold in your portfolio and just hope that it doesn’t go up – remains a sound one. And while I don’t want to be overdramatic, there are some particularly pertinent reasons right now to believe that insuring against nasty surprises is a good idea.
It’s nice to have some insurance
For a start, we’ve just been through one big surprise in the form of the pandemic and it seems we may still have a while to go before we can put that behind us. The economic impact of all the money printing we’ve been doing is not yet clear and nor is it clear how much more might have to be done. So holding a bit of gold just in case rampant inflation does materialise seems only sensible – particularly as the latest Bank of America global fund manager survey shows that managers’ inflation expectations have plummeted – this month, just 4% of those questioned said they expect consumer price inflation to be higher next year, compared with a peak of 93% in April.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
And while I’m sceptical about the idea that the rapid fall of Afghanistan, awful situation though it is (see page 8), represents America’s “Suez moment”, any more than did Libya or Vietnam or any number of other foreign-policy misadventures, I do think it’s fair to say that the geopolitical situation is more complicated and overtly antagonistic than at any time since the Berlin Wall fell. Geopolitics rarely matters to markets, but on those occasions when it does, it’s nice to have something in your portfolio that goes up rather than down.
Finally, looking purely at markets, as GMO’s Jeremy Grantham told Merryn in the podcast a couple of weeks ago (don’t miss that one – listen to it here if you haven’t done so yet) the reality is that from bonds to house prices to US equities specifically, assets are mostly expensive. That doesn’t mean that everything is going to collapse imminently by any means. But it does imply a fragility that might make it worth taking steps to protect yourself and your wealth against.
Don’t just take our word for it. Palantir Technologies – a “big data” analytics company with a background in counter-terrorism and cybersecurity – has just bought $50.7m-worth of gold bars for precisely this reason. The company has the bars stored somewhere in the northeastern US and is “able to take physical possession... at any time with reasonable notice”. Palantir’s chief operating officer Shyam Sankar said that “you have to be prepared for a future with more black-swan events”. I’m sure it’s good branding for a slightly secretive security firm to be hoarding gold – but I can’t disagree with the sentiment.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
-
Higher rates are disappearing – should you fix your savings?
Fixed savings rates have dropped to their lowest levels in over a year. Should you fix your savings now ahead of a potential base rate cut in November?
By Katie Williams Published
-
Nine million people fall victim to financial scams, says Citizens Advice
The charity says that around one in five people across the UK have been caught out by a finance scam in the past year - here is how to protect your money
By Chris Newlands Published
-
What will a broken-up Google look like?
The US courts have ruled that Google is a monopoly, leaving it facing the prospect of a break-up. WIll that be a good thing?
By Matthew Lynn Published
-
How will the UK gambling sector be hit by the Budget?
There are concerns for the UK gambling sector in the lead-up to the Autumn Budget. What could be on the cards?
By Dr Matthew Partridge Published
-
HSBC returns to cost-cutting plan
HSBC is set to revamp its commercial banking division – but will it come at a cost?
By Dr Matthew Partridge Published
-
Pfizer shares rise as US investor takes $1 billion stake
Pfizer shares are on the up since US activist investor Starboard Value built up a stake in the drug maker. But strategic options appear limited
By Dr Matthew Partridge Published
-
Qualcomm could acquire rival Intel – but securing the deal won't be easy
A tie-up between Qualcomm and its semiconductor rival Intel would be a coup. But multiple regulatory and commercial hurdles lie ahead.
By Dr Matthew Partridge Published
-
How to invest in the quiet market months
Here's how to invest in the quiet market months, since “sell in May” hasn’t paid off this year.
By Cris Sholto Heaton Published
-
Spire Healthcare: invest in the booming demand for private healthcare
Spire Healthcare is one of the few listed companies benefiting from the growing trend in private healthcare. Should you invest?
By Rupert Hargreaves Published
-
Are insurance companies a good investment?
Costs may be soaring but the insurance sector is currently going through one of its most profitable periods. The market has been slow to realise the opportunity here
By Rupert Hargreaves Published