Gold still the safe haven among all the midsummer madness

Gold remains a safe haven

It has been a difficult year so far for investors, with so much uncertainty making it incredibly difficult to decide where to invest.

Since the beginning of the year the FTSE 100 index, which is the highest profile index in the UK market, has fallen by 3.54 per cent - not an inspiring statistic.

However, it has outperformed medium sized companies - the FTSE 250 index has fallen by 5.78 per cent, illustrating how the oil and mining sectors have recovered strongly as they dominate the FTSE 100.

The wider FTSE All-share index (which comprises of about 630 constituents) fell by 3.92 per cent over the same period. It is no surprise that oil has seen a steady rise in its price since the start of the year: it has risen from under $38 a barrel to over $50, a rise of about 35 per cent.

So what about overseas markets, or is this volatility confined to the UK?

Not at all. The Japanese market has had a real annus horribilis, with a fall in the Nikkei to date of over 18 per cent. Europe, too, has fared worse than the UK, with its markets declining by over 8.4 per cent. In contrast the US has seen a remarkably stable and buoyant market with the S&P 500 index up by 1.33 per cent since January 1, a surprising statistic when one takes into account the long and rather fraught path to the Presidential election in the autumn.

However, the US as the largest economy has been viewed as something of a safe haven and certainly in currency terms the US dollar has offered a refuge for those mistrustful of the turmoil in Europe as we approach the referendum.

After all, sterling has declined against the dollar, although its fall of 2.6 per cent over the year to date looks fairly modest when compared with the stock market movements.

The other ultimate safe haven is of course gold. It should come as no surprise to learn that it has climbed steadily over the year to date and at $1278 an ounce is up 20 per cent.

With inflation so low would it perhaps be preferable to remain in cash? In terms of safety there is, of course no better place. But in these days of desperately low interest rates – and no sign of them rising any time soon – it is hard to think that this is really the best place for investors' hard earned savings.

In fact all asset classes should be considered but on a carefully selected basis. Volatility in the stock markets inevitably gives rise to opportunities, although the risk should always be borne in mind.

It should also be remembered that the UK market is a very international one - the oft-quoted statistic that 70 per cent of earnings of the FTSE 100 index come from overseas illustrates this perfectly.

Thus, even when caution is warranted, investors should not be deterred from focussing on fundamentals and looking at a well-diversified portfolio which should prove its worth over the longer term.

:: Cathy Dixon is a director at the Belfast office of Cunningham Coates Stockbrokers, which is a trading name of Smith & Williamson Investment Management (SWIM). This article does not constitute a recommendation to buy or sell investments and the value of any shares may fall as well as rise. Investments carry risk and investors may not receive back the amount invested. The views expressed are those of the author and not necessarily of SWIM.


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