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:

Should you invest £1,000 in Standard Chartered right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Standard Chartered made the list?

See the 6 stocks

“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.

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

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

Investing Articles

Here’s how to produce a £1,400 second income from a £20k ISA in the next year

Harvey Jones says it's possible to generate a second income of £1,400 from this year's Stocks and Shares ISA. It…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

The BP share price keeps falling. But should I put the energy giant in my SIPP?

Our writer looks at the recent BP share price performance and considers whether it would be a good addition to…

Read more »

Investing Articles

How much would an ISA investor need for an early retirement?

Even with the rising cost of living, regular investment in a Stocks and Shares ISA could help Britons retire before…

Read more »

Investing Articles

Could the Tesla share price really fall to $120?

The Tesla share price has collapsed since Trump took office, and the news just keeps getting worse for Elon Musk’s…

Read more »

Investing Articles

2 UK stocks and funds to consider buying during this market downturn!

A diversified portfolio of UK stocks and other assets can deliver excellent long-term returns even after periods of severe volatility.

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

£10,000 invested in Alphabet stock 1 month ago is now worth…

Alphabet stock is a major casualty of Trump’s trade policy, with investors betting on reduced demand for advertising, among other…

Read more »

Investing Articles

Want a comfortable retirement? Here’s how much you need in your SIPP

The SIPP is a great vehicle for confident investors to build their personal pension over time and eventually use that…

Read more »

Investing For Beginners

3 ways I try to spot cheap shares during a stock market crash

Jon Smith talks through his process of filtering for cheap shares at a time when simply buying anything isn't the…

Read more »