I thought gold was supposed to be the ultimate safe haven, the ideal asset to hold in the middle of a stock market crash. It doesn’t look that way at the moment, as the gold price has sold off along with everything else. So what’s the point of buying gold, if it doesn’t fulfil its primary purpose at times like these? I’m beginning to wonder.
Instead of chasing the gold price on the assumption that the stock market crash will continue, I would rather invest in a Stocks and Shares ISA, in the belief that the FTSE 100 will eventually recover. Whether you have £5k at your disposal, or £1k, or £2k, this is where I would start.
When the gold price hit $1,700 in last week’s stock market correction, gold bugs seem to be vindicated. Then it surprised everybody by falling itself, by around 12%, to trade around $1,495 at time of writing.
Gold price loses its shine
Profit-taking was partly to blame for the gold price crash. Also, fund managers started liquidating their gold holdings to pay for customer redemptions, or to shift money into cash to they could be ready to buy shares at the right time.
Those who bought at the top will have got their fingers burned, from an unlikely source. What many people fail to realise is that gold price movements can be volatile and unpredictable. That’s because gold has few practical uses and its price is largely driven by sentiment. I wouldn’t invest £5k in gold today.
Crucially, gold doesn’t pay any interest either. That should be less of a problem now, as global interest rates are being slashed and bond yields are plunging. Still, it looks hugely unappealing when you can invest in blue-chip stocks like Royal Dutch Shell and enjoy a yield of nearly 14%.
Stock market crash throws up bargains
The stock market crash has been even more painful, with the FTSE 100 down roughly a third this year. For me, that makes now a time to buy shares, rather than sell, as there are some incredible bargains out there.
You have a couple of weeks before you lose this year’s £20k Stocks and Shares ISA allowance for good, at midnight on 5 April. You do not have to invest the full £20k, but try to invest some. Investing £5k today could give your future wealth a real boost, provided you hold for the long term.
Now looks like a dangerous time to buy, but if you are planning to stay invested for at least five or 10 years (20 or 30 years would be even better), this could be one of the best financial decisions you ever make. That time give your money has ages to roll up in value.
That’s especially true if you reinvest your dividends for growth, as you should. So beware today’s gold price, and consider putting stocks and shares in your ISA instead.