A proven safe-haven in times of trouble….

Monday, 14th January 2019

A proven safe-haven in times of trouble….

When markets become unreliable or unpredictable – or worse go into meltdown – it makes sense to make sure you’ve got some protection….

Admittedly, the options are limited….

Almost every investment or asset class is correlated to the rises and the falls in stock market values….

But not gold….

Time and again, over the years, gold has proved the place to be when it comes to protecting investment portfolios from volatility and negative action in the stock markets….

Now is a good time to consider getting on the right side of gold….

I’m not talking about going the whole hog, liquidating everything you own and transferring it into the precious yellow metal….

But a little exposure is a good hedge against market stress. And stress is certainly present in the markets right now….

  • The sinking feeling….

We could look in turn at every major index in the world and find a similar story, but we’ll just focus for a moment on the FTSE 100 – the index comprising the 100 companies with the highest market capitalization listed on the London Stock Exchange….

The index closed on Friday at 6918.20 – 6.74% in arrears since the beginning of October 2018….

And Friday’s closing figure represents a loss of 12.47% since the index hit its record intra-day high-point of 7903.50 back on 22nd May 2018….

After a decade of relentless optimism, unprecedented growth and record highs, the sinking feeling that has taken ahold of the market in the last few weeks is an unusual one for investors….

Last week was a mixed bag with the index hitting a low point of 6781.22 on Monday and a high-point of 7001.38 on Friday….

Seasoned and novice investors alike will know deep down in their sub-conscious minds that bear markets do not go down (just as bull markets do not go up) in an entirely straight line….

The record shows in certain detail that it is always more turbulent than that….

But that doesn’t stop the eternal optimists greeting every fresh mini-rally in prices as a signal that the worst is over, that the correction is at an end and that the market is about to get back to business as usual and start climbing back well above the 7000 ceiling….

  • Darkening skies….

Of course, here at Money Truths we hate to be killjoys. We don’t like to be the ones to bring a wet blanket to the party….

But we’d be very surprised if the market had shaken this bear off its back in quite such short order….

Bear markets tend to take a little longer than a few short weeks to the do their work. We’d be surprised if this one was even halfway started yet….

And some of the things we were reading about last week serve to support our contention….

The World Bank publishes its assessment of global economic prospects on an annual basis. This year’s report is entitled Darkening Skies. Enough said….

The report predicts slower global growth this year and next – which you’d expect to see expressed as falling values in the markets….

  • Sputtering engines of growth….

US growth was one of the success stories of 2018. But the momentum is slowing  as the effect of the Trump-inspired tax cut fades….

The World Bank sees US growth falling back from last year’s 2.9% to just 1.6%….

China too is an engine of global growth that has been misfiring of late….

6% growth is anticipated by 2021. But whilst that is a strong figure compared to elsewhere, it is a long way shy of the average annual growth of 10% the Chinese economy enjoyed between 1980 and 2010….

When two biggest economic engines in the world start to sputter and groan, that surely has to find negative expression in the markets?

It could be worse though. Much worse. Some clown in power could whip up a trade war between the US and China – the two global economic titans….

A trade war that will only succeed in damaging business and producing rising prices across the board for consumers….

But rest easy in your bed. Nobody in a position of great power would possibly be that stupid….

  • Closer to home….

Black clouds gather in the skies above Britain too….

For a start there’s the never-ending and over-arching melodrama that is Brexit….

Are we in? Out? Are we ever going to find out? Are we voting again? What does it all mean?

The whole thing has stopped making sense to me. I’m very close to losing interest one way or the other. Following the saga day-by-day diminishes my will to live. Maybe that’s the plan….

My best guess at this point is that whether we leave, remain or continue to live in a perpetual state of flux and limbo, it’s going to have negative consequences in the market….

Whatever happens – deal, no deal, half a deal, new referendum, or parliamentary log-jam – the future is uncertain….

And markets do not like uncertainty. They react badly to it….

  • More bad news

British output productivity fell in the third quarter – registering the lowest reading in two years….

The Recruitment and Employment Confederation reports that British businesses are hiring permanent staff at the slowest rate since April 2017….

Sales of new cars in Britain  fell in 2018 at the fastest rate since the global financial crisis 10-years ago….

The retail sector just endured its worst Christmas in a decade….

There isn’t much to shout about at the moment. But the optimists remain optimistic. Harvey Jones at the Motley Fool, for example. He says this….

‘Ignore the gloom. The FTSE 100 could still hit 8,000 in 2019!’

I suppose it could. Anything is possible. And I admire the man’s Never Say Die spirit….

But ignoring the gloom doesn’t make it go away. It doesn’t mean it isn’t there. And it doesn’t mean that you can avoid the effects of what it reflects, even if you really don’t want to accept or believe it….

Things are a bit gloomy. That’s a reality. Rather than ignore the gloom, we take it and accept it for what it is….

And we consider the prevailing gloom a precursor to falling stock prices rather than the next step to new record highs of 8000+….

  • The smart option….

Right now, gold is a smart option. It doesn’t pay interest or a dividend. But it does have a solid track record of holding – and increasing – its value in times of turmoil in the markets….

It’s a solid tangible asset that offers capital protection if or when stocks are tanking….

Consider buying physical gold….

Another way to get exposure is via an exchange traded product or a specialist gold fund….

Now is a good time to get some degree of exposure to gold – the ultimate safe-haven asset….

That’s how it looks from here….

All the best,

Dave Gibson

Money Truths