Gold losing its safehaven investment status?

Gold losing its safehaven investment status?

Is gold losing its lustre as a safehaven investment class? Are equity-heavy portfolios now balanced by property?

Summary:

  • Gold prices have hit a six-year low as the dollar continues to strengthen
  • The commodity has traditionally been seen as an investment safehaven, rising to record highs during the last economic downturn
  • Now property is a more favourable low-correlation asset for many investors

Is UK property now the number one safehaven investment?

Traditionally, the underlying uncertainty within the investment market dictates that portfolios include a low-correlation asset – an investment class that would either rise in value, or at least maintain its long-term performance, should global equities markets take a downturn.

During the banking crisis, demand for gold surged and as a result prices hit all-time highs. However, this week, the value of the precious metal dropped to its lowest level in almost six years.

Gold for December delivery, the contract currently most actively traded, ended Monday (November 23rd) down 0.9% at $1,066.80 on the New York Mercantile Exchange.

A trading note from INTL FCStone said: “Continued strength in the dollar and questions about the speed and trajectory of interest rates have been the usual factors keeping gold’s upside potential very much in check.”

Priced in dollars, gold becomes more expensive to buy for holders of other currencies as the greenback rises and, with a Fed interest rate rise expected next month, the dollar is likely to strengthen further.

Furthermore, investors favour yield-bearing assets, such as bonds – when rates are higher – and property, especially in markets such as the UK, which have a history of sustained capital growth and regular yields.

If faced with the prospect of investing in gold or UK property, investors should be wary that a quick rebound in the price of precious metal is very unlikely and it is advised that portfolios stay ‘light’ in the commodity.

Find out why international demand for UK property investments has never been higher in our latest ebook:
"Investing in UK Real Estate"

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