Is It Time To Buy Gold As Grexit Looms?

What does gold offer … and is now the right time to buy?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Many fans of share ownership — me included — barely give gold a second thought. After all, over long periods of time, equities have outperformed all other assets.

The Oracle of Omaha

Legendary US investor Warren Buffett — in a 2011 letter to shareholders of his Berkshire Hathaway investment group — famously compared the entire world’s gold stock of 170,000 metric tons, valued at $9.6 trillion (pile A) with another set of assets costing an equal amount (pile B). Pile B consisted of all US cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually)”, and about £1 trillion spare cash left over.

He continued:

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

“A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty … Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond”.

Owners of gold, Buffett said, “are not inspired by what the asset itself can produce — it will remain lifeless forever — but rather by the belief that others will desire it even more avidly in the future”.

If you didn’t already know, you’ve probably guessed by now that the world’s greatest investor doesn’t bother with gold!

Insurance policy

The argument for having some exposure to gold, put forward by many financial advisors — 5%-15% of your assets seems to be a common recommendation — is as a kind of “insurance policy”. Gold often does well during times of fear — when shares are typically falling — and, thus, can mitigate the decline in value your portfolio would otherwise be showing.

Buffett is not concerned about periods of volatility in equities, but if you are, you could consider adding some exposure to gold. Right now, there’s a good deal of uncertainty around. Will there be a “Grexit” or will the can be kicked further down the road in a “Fudge-it”? Why has the Chinese stock market gone haywire? These are just some of the questions on the minds of nervous equity investors.

Of course, you don’t really want to be buying a gold “insurance policy” when everyone else is avidly buying and the “premium” (price) is high. Perhaps surprisingly, though, demand for gold is muted right now. Apparently, the strong dollar is making the US currency the flight-to-safety asset of choice for the time being.

Gold is currently some 40% below its September 2011 all-time high of $1,921 an ounce. Over the last three years the price is down 27%, and over the last year by 12%. As such, now might be a reasonable time to buy your gold insurance policy, if you’re so inclined.

Choice

Many equity investors looking for exposure to gold will naturally think of gold mining companies. FTSE 100 giant Randgold Resources (LSE: RRS) (NASDAQ: GOLD.US) will be familiar to most. Rangold’s shares are down 28% over three years and down 17% over one year. That’s in line-ish with the price of gold, but the company’s earnings have declined more markedly than the share price. The miner could actually be an attractive buy, based on a forward price-to-earnings growth ratio of 0.9 for 2016.

However, investing in a gold miner — even a blue chip, such as Randgold — wraps up equity risk with exposure to the yellow metal, which isn’t really what’s wanted from an insurance policy. The point is only emphasised by looking at a fund, such as unit trust BlackRock Gold & General, which has 60 holdings, including Randgold at 10% of the portfolio. This fund is down 52% over three years and 22% over one year.

No, for an insurance policy — aside from literally buying lumps of gold — an exchange traded fund (ETF), which can be bought like any other share on the stock market, is probably the best option. ETF Securities Physical Gold (LSE: PHAU) simply tracks the movements of the price of gold (less the management fee), reflected in three-year and one-year performance figures of -28% and -13%. Unlike some ETFs that achieve the purpose “synthetically”, this one is backed by physical gold held by HSBC, each bar being segregated, individually identified and allocated.

However, don’t buy any shares just yet

Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.

It’s called ‘5 Stocks for Trying to Build Wealth After 50’.

And it’s yours, free.

Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.

And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.

That’s why now could be an ideal time to secure this valuable investment research.

Mark’s ‘Foolish’ analysts have scoured the markets low and high.

This special report reveals 5 of his favourite long-term ‘Buys’.

Please, don’t make any big decisions before seeing them.

Secure your FREE copy

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended shares in HSBC. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »