Talking Point  

Investors turn to gold amid market turmoil

Investors turn to gold amid market turmoil

More multi-asset managers are turning to gold , due to its potential to perform well in the current environment.

David Coombs, multi-asset investor at Rathbones said gold is an asset class he believes will do well,  “whatever happens” to the economy in the months ahead.

Mr Coombs said the vast fiscal stimulus deployed by the UK and other governments in response to the Covid-19 crisis could lead to “hyper inflation” as all of the extra cash moves through the economy and demand picks up.

In such a situation, gold would be a good investment as it tends to hold its value even if inflation is rising. This is because, while more paper currency can be made, there is a finite amount of gold in the world. 

He added that hyper inflation is not what he expects to happen, as he thinks the economic recovery will be similar to that which occurred after the global financial crisis, whereby wages do not rise, and so growth remains relatively low, and inflation very low.

He said if there was no inflation, this would also help the investment case for gold, and in such a scenario, the yield on government bonds would be very low.

Gold essentially competes with government bonds for the role of safe haven in times of market strife, and if bond yields are low, and therefore the price is high, gold could be more attractive.

This also applies if the yield is low on government bonds, because gold does not pay an income, and so investors who choose gold over government bonds are essentially sacrificing the income from the bond, but if the income is low, the sacrifice is less.  

James Sullivan, UK managing director at multi-asset fund house Miton Optimal said: “We held around 6 per cent of gold at the turn of year, we are now north of 10 per cent. 

"We increased our exposure in January and again during the setback in spot price during March.

"The attractiveness of gold is multi-dimensional and it plays an important part within a multi asset toolbag.

"Right now, with further monetary debasement and the credit worthiness of bond issuance plummeting, gold looks well placed to add value in the near term whilst potentially offsetting some of the volatility one can expect to witness in more conventional asset classes.”