Navigating the economy: Is gold the answer?
History has shown gold to be a steady investment worth keeping; it’s now proving its value again in a difficult market.
Gold is making a significant recovery for investors looking to diversify outside property.
Tony Coleman, NZ Gold Merchants managing director, says there has been a resurgence of interest in the precious metal. He explains that gold delivers something few other stores of value do.
“Gold behaves predictably in normal market conditions, but it protects the downside risks in times of trouble.” The old adage of sell in May and go away has affected the share markets and gold alike. However, gold has jumped significantly in late-July, and may soon be heading higher. In June, gold in New Zealand dollars (NZD) moved 3.5% from its low of $3075/oz and is currently up 6.5% for the year.
Coleman says this is good news for investors who are looking for investment opportunities beyond the real estate market. Property has long been a tried and true physical asset beloved by New Zealanders that has historically shown continued returns and the ability to leverage.
Despite media reports centred around the decline in housing prices, coupled with the increase in interest rates, it’s now lost much of its sheen. Although some may consider it money in the bank while investors are “sitting on the sidelines,” for other investors, hard assets can offer a great alternative, particularly gold.
The risks of a market crash
There are predictions of a coming market crash. The Centre for Economics and Business Research (CEBR) expects a global recession will start in 2023 which investment bank Morgan Stanley expects may shave off as much as 16% from the United States economy.
Property, long the preferred ‘safe as houses’ choice for Kiwi investors, has become a minefield of regulation making landlords skittish, Coleman says. Inflation is persistently high as are interest rates. “At the same time, the government is determined to expand debt and spending rather than improve productivity and properly manage the quality of spend,” Coleman says.
This makes ‘safe haven’ allocations in any portfolio a wise move, says Coleman, and gold is one potential avenue worth exploring. “History shows that gold and silver helped to counteract losses from the huge stock market and property bubbles.”
In fact, reports Forbes, in all but two of the recessions between 1973 and 2020, gold outperformed the S&P 500. It is not only investors looking to buy gold but nations. In the past eight months, China has added to its gold reserves for eight consecutive months with the purchases apparently motivated by economic and geopolitical risks. The country now holds some 2,330 tons of metal, according to Bloomberg.
Coleman says with the dominant position of the US dollar now being tested by China, its hegemonic status is potentially wavering and while what this means is unclear, what is certain is increased global tensions. And, Coleman continues, while the practice of selling government debt for funding has long been a tradition in Western nations, there seems to be a waning interest from the East in this kind of debt.
Golden rules to follow
A question confronting every investor is whether they’ve ‘missed the boat.’ Coleman says. While hindsight is 20/20, the future is more cloudy. As with any investment, careful due diligence, and a phased approach to buying in is advisable, with ‘now’ the best time to start.
As a protective asset class, a rule of thumb is that 20% of total net worth (outside the family home) should be in gold or precious metals. “Even the big hedge funds hold gold; they know it will help get them out of bad positions,” Coleman says.
“My personal view is that gold and silver have unrivalled benefits, particularly when the world is starting to experience significantly increased risk. The question to ask yourself is not what can I make? Rather, what am I prepared to not lose?”
NZ Gold Merchants was started in 1975 by Bruce Coleman. His sons Tony and Richard are now involved in buying, refining and selling gold and trading in precious metals. The company was the first in New Zealand to produce local silver bars and the first to offer gold chains manufactured with local gold.
For more information:
Gold prices’ – Gold Price Today > Gold Spot Price NZ // Platinum & Silver Pricing (gogold.co.nz)
Buying and selling gold – Buy Gold & Silver NZ > Silver & Gold Bullion, Coins & Bars Online (gogold.co.nz)