Time to reinvest cash into gold stocks

US Federal Reserve chairman Ben Bernanke announced an unlimited third round of quantitative easing, following the ECB’s announcement of its Outright Monetary Transactions programme in an unlimited but conditional format in an attempt to safeguard the future of the euro.

Quantitative easing has a clear and direct short-term impact on the prices of financial assets. However, longer-term impacts on bond yields and asset prices are much harder to prove.

Therefore, with a potentially insolvent and deleveraging banking system in Europe, the impact of expanding the monetary supply is unlikely to filter through to small and medium-sized businesses that crave it.

As we approach the fiscal cliff in the US – the deflationary tax rises and spending cuts at the end of 2012 – economists will continue to revise down their developed market growth forecasts, and this will test current optimism in capital markets.

We have reinvested the cash from the sale of more cyclical stocks in the portfolio into our favourite stocks that can grow their dividends sustainably. We have also added a gold miner, Randgold, to the portfolio as policymakers continue to devalue reserve currencies and investors buy gold as a potential alternative.

Richard Black is a UK equity income fund manager at Legal & General Investments