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Golden Opportunity

15.06.22

Gold is one of the best assets to have in your portfolio during times of economic and political crises. Stephen Flood, CEO of GoldCore, the precious metals brokerage company, explains why gold is the ultimate bolthole

Like property, gold is a tangible asset but in addition to this it is a long-term safe haven. It has been a store of value for thousands of years. It has stayed attractive for so long because it does not follow traditional market movements, supply is limited and it often has a negative correlation to the likes of stocks and shares. For most of us, property will be the biggest investment and capital outlay that we make in our lifetimes. We are prepared to make such a big commitment to one asset class for three main reasons: Firstly because we can live in it, so it has a use; Secondly, if we choose to rent it out then it will pay a yield; and thirdly because here in the UK we seem to have an almost indefatigable belief that it will go up in value, during our tenure and in the last seventy years, this is basically what has happened.

These are all good reasons. It’s rare that you can buy an appreciating asset that you can also use. The property market has been on an upward trajectory since 2008. This is clear in both prices and private rents. In the last year alone UK property prices are up 10.9% and private rents by 10.8%.

As property owners, these are definitely things to be celebrated. But once we’re done congratulating ourselves on our smart investment choices, it might be a good time to ask why the property market is doing so well.

There’s more to property prices than demand and supply

Bar the 1990s and the crash of 2008, property has been on a tear since the 1950s. This can’t be explained just because property ownership has suddenly become popular and housing supply so low. Something within both the UK and global economy has facilitated this boom.

Whilst there are many factors that have led to the increase in house prices, much of it comes down to the intense creation of new money both before and after the financial crisis.

Every time a bank makes a loan, new money is created. In the decade in the run up to the financial crisis, money created through mortgage lending alone quadrupled. Add to this, the billions printed in the aftermath of the global financial crisis and of course during the pandemic, and we’ve got ourselves one big game of monopoly going on.

When central banks and governments choose to use monetary policy to support economic growth, it very simply means that the stock of money floating around the system is increased. This is done by quantitative easing and low interest rates. So, there is more money chasing the same amount of goods and services. On the flip side of this, we see debasement and a fall in the purchasing power of the currency. In short, our money is worth less.

Add another diversifier to your portfolio

Many savers and investors, seeing their savings earn less in the bank and no longer going as far as they did prior, have turned to property as a safe haven for their hard-earned cash. As outlined above, this makes sense. But, it is always prudent to have a diversified portfolio which is why even if interest rates manage to stay low and property prices are affordable for you, it’s a good idea to look to put your money into another tangible asset, alongside your property. This is particularly the case when risks such as inflation, counterparty risk and geopolitical dangers continue to loom large.

At present, inflation is grabbing headlines on a weekly basis. It is also the number one reason for new investors buying gold. This is because gold is an excellent hedge against inflation. As GoldCore, CEO Stephen Flood explains; “Over the last 20years, inflation in the UK has risen by 2.5% per year (NSO). Over the same period, gold has risen by over 10% per annum. As an inflation hedge, gold has the historical credentials that other investments do not.”

Whilst there are a number of tangible assets that are not exposed to counterparty risk, none exist that are as liquid as gold. Should you need to buy more or to sell some of your gold holdings at short notice, it should be very straightforward and speedy to do. This is in contrast to other ‘real’ assets that usually require you to go through a number of hoops in order to liquidate your holdings.

GoldCore CEO, Stephen Flood concludes: “We still think property is a sensible asset to hold in your portfolio but we do live in very uncertain times - pandemic, climate change, indebted countries etc. Whilst property is tangible and practical, your portfolio requires a safe haven that has stood the test of time and can provide shelter for your investment portfolio.”

www.goldcore.co.uk

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