The lessons we should take from the gold crash

16 Apr

The freefall of gold prices in recent days underscores the need for investors to hold a well-diversified and regularly reviewed portfolio.

 

Yesterday, the so-called ‘safe haven’ metal fell a further 8 per cent, to under $1,400 per ounce, bringing it down to its lowest level in two years.  It is now in bear market territory, having fallen 27 per cent from its record high in the autumn of 2011. As a company we warned the price was too high 15 months ago. 

 

Most analysts agree that this week’s crash has been led by weak economic data coming out of China.  The economy of the People’s Republic, the world’s second largest, grew by 7.7 per cent in the first quarter of 2013, down from 7.9 per cent in the previous quarter, sparking fears over a serious slow down in the superpower’s economy and the likely global consequences of this. I believe that people are also now realising that Gold is not a good long term investment.

 

News that Cyprus is to sell off its gold reserves, as part of its bailout in order to raise around 400m euros, plus notions that the Federal Reserve in the US is now less likely to extend its programme of quantitative easing (QE), has also served to exacerbate the situation.

 

To my mind, what has happened to gold recently highlights that, like never before – as we’re living in fast-changing, volatile times in an increasingly globalised and interdependent world – has a well-diversified, professionally-managed portfolio been so important to mitigate adverse external factors and benefit from the positive ones.

Personally I believe the next asset class to fall in the next 18 months will be Govt Bonds. That however doesn’t change my advice which is invest with investment managers such as JP Morgan, Goldman Sachs and GAM who all manage excellent well diversified portfolios.

Nigel Green deVere Group

Blog written 16th April

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