Gold is old-fashioned, but it works!

Since the beginning of the year, most share indices have been correspondingly volatile. In such phases, bonds have always provided stability in the past. Tempi passati – bonds are currently experiencing their worst bear market in living memory. This is bad news for typical investors like you and me: The classic portfolio consisting of 60% equities and 40% bonds is currently failing.

The good news: gold can bring stability back to your portfolio. Gold? Yes, I know, in the age of cryptocurrencies that sounds hopelessly old-fashioned and dusty. But old-fashioned and dusty still works.

You don’t have to think gold is sexy to recognize that it has once again lived up to its reputation as a rock in the surf. While shares and bonds are down in 2022, gold is one of the few assets that is up. The precious metal has also reliably proven its value in previous market turbulence.

This time, the return of inflation and higher interest rates are putting pressure on the markets. Have you noticed that the central bankers have secretly removed the word “temporary” from their vocabulary? That’s because inflation is about as temporary as the Swiss highway toll sticker introduced temporarily in 1985. Instead of falling, inflation has actually increased. 7.9 % in the USA, 5.9 % in the eurozone – these are figures that have not been seen for forty years. It is true that Switzerland has got off a little more lightly so far. However, at 2.2%, inflation in Switzerland has also climbed to its highest level since 2008.

If the inflationary pressure does not subside soon, the price of gold will continue to rise. And if you look at how Western governments want to defuse the commodity shock, there is no sign of inflation easing any time soon. In the major EU countries and in California, there are intensive discussions about easing the burden on voters through (energy) subsidies and tax cuts. At the same time, military spending and investments in green energy are to be increased. In other words: demand is being fueled with even more money!

There is another reason to hold more precious metals in your portfolio: the West’s decision to deny the Russian central bank access to its currency reserves. Why, you ask? What are reserves worth if you can’t access them in an emergency? Are you betting that central banks from China to Saudi Arabia will shift their reserves from European and American government bonds into gold in future?

With this in mind: stabilize your portfolio!

Yours, Mark Stock©

Mark Stock is a member of the Point Capital editorial team. “I am a stock market enthusiast and am passionate about economic history. I have been following the ups and downs of the markets for years and, of course, invest myself – preferably in shares. So my name says it all. Every month, I take up what I consider to be an exciting topic. And since the focus is on the content and not on me personally, I write under a pseudonym.”