With the price of gold trading near its all-time highs, I’d avoid speculating on the precious metal. Instead, I’d head for cheap FTSE 100 shares.
Investors tend to see gold as a safe haven in times of economic uncertainty. But with lockdowns beginning to lift, there’s a chance that economies will recover well from where we are now.
Cheap FTSE 100 shares could beat inflation
In theory, gold can behave in a way that protects our money from inflation. But so can shares in the FTSE 100, because the underlying businesses can raise their selling prices. And I reckon inflation may be a problem in the years following this crisis.
But to me, there’s a risk that the price of gold could fall from its current level because of ongoing speculation. I think speculation is likely a bigger driver of the gold price than underlying fundamentals. So inflation may not be as big a boost to gold as we might expect.
However, the fundamentals of often-strong businesses drive the prices of FTSE 100 shares. And that effect shows up most over longer periods of time. As businesses increase their earnings and assets, their share prices tend to rise to accommodate the progress.
Yet speculation can still distort share prices. We often see valuations rise to unsustainable levels. But the coronaviruses crisis has knocked many share prices back down. And with the speculative froth blown off, many stocks could prove to be selling cheaply now.
Property prices look vulnerable
Meanwhile, the future state of the property market is uncertain. It seems clear that economies will emerge in a different shape to what they were before the crisis. And we could see pressure on property prices. If people can’t afford property, the market could weaken. Falling personal incomes could be one potential driver for lower real estate prices.
For example, just last week airline operator eazyJet said in an update it expects reduced customer demand until 2023. In other words, it looks like the business will take around three years to recover to the pre-coronavirus levels of 2019. And with its statement, easyJet announced its intention to axe around 30% of its workforce – about 4,500 jobs.
My guess is we could see many losing their jobs across several sectors in the months ahead. And such a scenario is not a good basis for sustaining property prices now, no matter how cheap money is to borrow for mortgages. We may even see a crash in property prices to match the one we’ve just seen in the stock market. So I’d avoid putting new money into a buy-to-let property directly right now.
Of course, it never feels completely safe to be putting money into shares when the economic outlook is uncertain. But historically, the FTSE 100 has always recovered from its lows. And buying shares in times of uncertainty when prices are lower often works out better than buying when the outlook is rosy and prices are higher.