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Given toppy equity market valuations and historically low bond yields, could going for gold be the solution to investors’ woes? We ask three wise men – Rathbone’s David Coombs, Investec’s Alastair Mundy and Artemis’s William Littlewood – why they believe holding onto the yellow metal is prudent this Christmas.
Coombs, who heads up the Elite Rated Rathbone Strategic Growth Portfolio, said gold can act as a hedge against fiat – or paper – currencies as well as US dollar debasement, as its value tends to rise when the dollar weakens.
“Another proven property of gold is that a hedge again rising geopolitical tensions”, Coombs said. “This relationship has been demonstrated during numerous periods in the past, with the most recent example being the sabre-rattling between the US and North Korea. As tensions have increased, gold prices have risen.”
“In our opinion, do you need to be tin-hat-wearing gold bug to appreciate the yellow metal’s portfolio diversification and hedging properties in these uncertain times as far as monetary policy and geopolitical is concerned”, he added.
Alastair Mundy, who runs the Elite Rated Investec Cautious Managed fund, currently has a 9.1% weighting in physical gold and silver and 4.1% in gold and silver shares.
“We believe current valuations of stocks and bonds are somewhere between expensive and obscene, other than in certain areas where we see value,” he said. “We also believe the changing tone from central banks is further reason to adopt a cautious approach.”
The manager warned that, as we head into the New Year, the reversal of QE [printing money to buy financial assets) and interest rate rises from central banks is likely to unsettle markets.
“In that scenario, we would expect bond yields to rise, while equities, which have been so reliant on low bond yields the past few years, could very easily fall,” Mundy explained.
As such, the manager believes precious metals could come to the fore in 2018 as investors lose faith in central banks.
William Littlewood, who manages the Elite-rated Artemis Strategic Assets fund, warned that today’s market conditions resemble those last seen in 2007, given how high global debt levels are.
There are also similarities, in his view, to 1999 given that valuations in some parts of the technology sector no longer seem to matter.
As such, his fund is cautiously positioned and currently has an 8.9% allocation to gold.
However, the manager said there are also alternatives to gold within the commodities space that could also stand investors in good stead.
“One observation is that the price of palladium, which was up 5% during November, has now increased significantly and is trading at a 16-year high,” he pointed out.
“The low relative price of platinum should cause substitution away from palladium in a variety of uses, including demand for use in petrol engines. This factor might be supportive to platinum prices, which accounts for about 30% of our overall precious metal position.”