Gold, silver and food - safe havens for savings?

Wednesday 05 December 2012 12.31
Is gold a safe haven or a bubble about to pop?
Is gold a safe haven or a bubble about to pop?

Gold and the Swiss franc are hot targets for investors at the moment. Some warn gold is another bubble about to pop and the Swiss are worried about their currency. So where else are people investing savings?

With the spectacular collapse of Irish banks, many have seen their pensions in the form of life savings wiped out.

And the continuing uncertainty across the globe is causing investment jitters in stock markets, everywhere.

The threat of the break-up of the eurozone hasn’t gone away making it difficult to work out what is a safe haven for your savings. In Ireland, an alternative to stocks and shares was bricks and mortar but the domestic property crash has left many chastened and reluctant to invest in a buy-to-let even if house prices look close to the floor.

Personal finance experts say the key thing is to have a diverse portfolio of investments to weather against future storms. In other words don't pile all your savings into one sector as so many did during the Irish boom by investing everything in the banks or buy-to-let properties.

Amatuer investors should also be prudent and not been panicked into making rash decisions in a volatile market. Something that looks good this week and next may not look good next year and the year after.

As John Darsie of the Wallstreetpit.com said: "Panic, fear and volatility create enormous opportunity and enormous risk for traders and investors, and it would be imprudent for amateur investors to try to make bold moves at this stage".

Share prices are being hitting across the world because jittery investors don't see growth and are swapping stock for cash investment elsewhere.

This is partly why gold has been rocketing in price.

Here we look at a few options for those thinking about investing cash.

Gold

The dash for safety has sent gold racing to record highs with the the cost of an ounce of bullion leaping to than $1,785 in late August. That compares to January when it was changing hands for €1,300 and over five years the price of gold has gone up 185% according to goldprice.org.

Moira Creedon, a former senior finance specialist at the Irish Management Institute notes the price has been going up since the World Gold Council made it easier for the ordinary punter to buy gold by launching Exchange Traded Funds in the mid noughties.

"This means you can buy a certificate for just a small amount, and someone else deals with the practicalities of security and storage. Combine easy purchase with global debt crisis and you get a run on gold, now up 44% in the last 12 months.

The current price is now getting close in real terms to the all time high back in 1980. That preceded a crash followed by decades in the doldrums, so this is not a risk free investment. However upward pressure continues fuelled by general fear and central banks worldwide accelerating gold purchases as faith in the dollar dwindles," she says.

However many analysts believe that gold has climbed as far as it can go and it is a bubble waiting to pop. Some however believe it will continue to increase. Next stop $2000 per ounce, argues Dominic Schnider, executive director for wealth management research at UBS.

Billionaire George Soros has already referred to gold as the ultimate asset bubble – and that was when it was trading at a thousand dollars an ounce.

Silver

Creedon, who now runs her own consultancy, Artemis Consultancy, advising corporate clients says silver has actually performed far better than gold in the last ten years and in particular in the last year has gained 113%.

"For those worried that gold is tottering dangerously near a peak, silver is tipped by many to accelerate in the remainder of 2011.

"Silver also crashed back in 1980, and while commentators argue that this boom is very different, a rapid rise in asset values is never without risk," she says.

The Swiss Franc

Investors have been flocking to buy francs as an escape from the turmoil in the eurozone so much so that the Swiss authorities moved to counteract what they believe is a massive overvaluation of the currency in early August.

On August 17, the Swiss central bank said it was intervening in the money markets again in an attempt to suppress the value of what it called a “massively overvalued” franc.

But with so much uncertainty over the future of the euro, the market still sees the Swiss franc as a long term bet. Creedon says:

"The euro is down about 23% vs the franc in the last year. This is less speculative than Gold – the economy behind the franc is solid.

As the Swiss sound determined to avoid parity with the euro it seems unlikely that major gains can be made here, but equally unlikely that major losses would be made by putting some cash into francs."

Scandinavian currencies

The Norwegian and Swedish krona have strengthened as the euro crisis deepened.

John Hydeskov, chief analyst at Danske Bank, owner of National Irish Bank, said: “Investors are starting to see Nordics with good fundamentals and good value.”

However trading in the currency markets is not for the amateur, but knowing a little about the Nordic currencies might make a good dinner party bluff.

Stocks and equities - are they so cheap now they are worth buying again?

The bearishness on Europe is leading to a fierce debate over whether the continent’s equities have dropped too far and now represent a buying opportunity. “It has been an unloved region in an unloved asset class, but valuations are becoming very compelling,” says Nick Nelson, head of European equity strategy at UBS told the Financial Times in mid-August.

European stock markets are, by some measures, the cheapest in the world. Commercial investors have been selling in Europe for this longest successive number of days since 2009, according to EPFR Global, a data provider.

So are there bargains out there for the amateur trader?

The traditional way of valuing shares is comparing the share price of a company to its profits – the price-earnings ratio. The P/E of the London stock market traded on a P/E of around 25 - ie, the price you pay for the shares is effectively 25 times the annual profits of the company. But the London stock exchange is now rading at 10.6 times, so they are historically low.

Others warn that there could be what is known as a ‘dead cat bounce’ – shares are cheap, but will go up between 10% and 15% and collapse again.

What stocks and equities? - food energy and pharmaceuticals

Stock markets all over the world have been tumbling yet again in recent weeks. Sometimes we forget that not all equities are the same. The average drops hide the fact that some sectors and individual companies are doing very well, says Creedon.

As she says “no matter how bad things get people always need food and energy”.

They will also pay any price for an extra ten years of quality living, which means that the food and pharma sectors are worth looking at if you are investing or choosing a portfolio of equities with your pension adviser.

"Here in Ireland Kerry Group has performed very well since early 2009. While oil prices have softened slightly recently reflecting fears of global slowdown, the long-term pressure on energy is relentless and alternative energy stocks are worth a punt,” she adds.

"Food commodity indices and ETFs have done very well in the last year, and with fears of inflation in the US and euro and dollar weakness that trend is likely to continue," says Creedon.

As for pharmaceuticals. This is what Creedon says: "Lifesaving drugs will always print money. Many of the big pharma companies are struggling to develop the next blockbuster cash generating drug, and smaller players are making many of the major breakthroughs in cancer and obesity research.

"These stocks subsequently go through the roof as they become attractive takeover targets.

"Good independent advice is crucial here, as it is hard to assess the technology without industry expertise.

"Likewise food technology companies that develop solutions that can change the shape of the industry - extending shelf life, new packaging solutions - are hot properties. Mainstream global companies like Kraft Foods act as good inflation hedges, performing consistently well despite the market crash.

"Kraft are now planning a split between fast growth global snack business and high margin cash cow American grocery business which is expected to create significant gains for investor.

"Though there will be pressure on public healthcare spending, people will always pay for health care and drugs that can save lives. Communications technology will also continue to grow- companies that power the web, the next generation of social networking are all worth keeping an eye on."