WHERE SHOULD I
INVEST MY £1 MILLION TO ACHIEVE CAPITAL GROWTH IN 2018?
By Robin Newbould, MANAGING DIRECTOR, BULLIONROCK
A number of the investment articles in this publication will probably start with some caveat emptor warnings about diversification, proper time horizons and the absence of available crystal balls … and I’m afraid that I too should caution that 2018 is not really a long enough time period, nor starts with any significant signposts, to encourage me to say that it will provide the perfect opportunity for investors to achieve capital growth from gold.
That said, I think the global economic and geopolitical backdrop are such that a consideration of investment in precious metals is now more than worthwhile. Firstly, a little look back: gold finished 2017 above the technically-and-psychologically-important level of US$1,300 per troy ounce and, in so doing, realised a very healthy 14% improvement in dollars, for the year. Sterling’s strength against the US dollar in 2017 saw this exact same gold gain translated into a less impressive 3.5% rise in GBP.
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Whilst looking in the rear view mirror, I‘m sure we all must have at some point in 2017 wished we had re- mortgaged the house and bought some cryptocurrency. I only mention it here to try and draw some obvious parallel investment arguments for gold: that includes scarcity, lack of counterparty risk and fiat currency risk mitigation. Bitcoin was, when first invented, often referred to as Gold 2.0 - an asset of which only a finite amount would ever exist; an asset that, if bought and held correctly, had no risk of being loaded onto a third party’s balance sheet; and an asset that might well perform better than, or inversely to, the conventional fiat currencies of long - and increasingly - debt - burdened countries. Having drawn such comparisons, I was pleased to read that Goldman Sachs had recently concluded, according to Bloomberg that: “Gold wins out over cryptocurrencies when assessed on the majority of the key characteristics of money. Precious metals remain a relevant asset class in modern portfolios, despite their lack of yield,” analysts at the bank wrote. “They are neither a historic accident
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or a relic. Looking at properties such as durability and intrinsic value, they are still relevant even with new materials discovered and new assets emerging, such as cryptocurrencies.
“Investors boost the amount of gold in their portfolio as uncertainty increases, making fear the key medium to short-run driver. Wealth is the long-term driver, especially in emerging markets such as China, where growing income levels over the next few decades will support prices.”
So what are the chances of capital growth from gold in the short term? As briefly touched on above, if we accept that gold moves up most readily as a result of fear and/ or uncertainty, then, without wishing any of it to come to pass, what should we be fearing this year? Well, researchers Stratfor, the world’s leading geopolitical intelligence platform, have had a good go at identifying the key global trends and constraints that will shape world developments in 2018. In an increasingly complex international environment, these include:
• Containment of a nuclear North Korea; • Deepening collaboration between China & Russia; • Increasing U.S. unilateralism in trade; • A hard-line U.S. policy toward Iran; • A global oil market recovery; • The next phase of China’s reform agenda; • Debate on eurozone reform; and • Persistent populism in Latin America.
“Economic interdependence, mutual distrust and unreliable security guarantees will encourage ostensible allies to hedge against one another for their own protection,” said Stratfor Vice President of Global Analysis Reva Goujon. “Such fluid relationships will come to define the global order in 2018 and beyond.” If this sounds convincing enough to allocate at least some of your £1million to gold as we enter this year, then please do get in touch.
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