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It seems like quite a while ago now since the financial markets offered some stability. With the turn of the new year, the hope is that the coming 12 months will offer a fresh start for investments in 2015. Unfortunately it seems the greenshoots of UK recovery experienced last year may prove to be the calm before the storm. Dramatic oil price falls, terror atrocities and the Swiss Franc decoupling from the Euro have already occurred in the first weeks of the year. With the possibility of a hung parliament in May, it seems that 2015 will be a very rocky year indeed for the investment world.
April will mark the start of pension freedom whereby 100% of a pension can be taken rather than being forced to purchase an annuity. Therefore falls in the value of your pension fund just won’t mean the difference of a few pounds a month to your annuity income. It could lead to a fall of thousands, or tens of thousands in the pension cash you hope to get your hands on. So it’s now more relevant to hedge against market turmoil than ever due to a far deeper impact on your personal finances.
Such macro economic mayhem requires portfolio diversification to protect its value from
dramatic falls. The scale of the falls we’ve seen in the oil price and Sterling suggest their impact on investment values could vast. This volatility will doubtless cause losses unless pensions and investments are spread amongst the various asset classes, with physical gold playing a major role in that protection. No-one has a crystal ball to predict accurately how any asset class will perform in a given period. The current market edginess makes this nigh on impossible. If we look at the performance of the major asset classes over the past 10 years, gold has been the top performer in 4 of those years and second best in another 2. Last year saw a steady 5.89% return, but this year’s market events could lay the foundation for another gold bull run.
In Sterling terms, gold is up more than 12% in the first 3 weeks of 2015. Part of this is due to its qualities as a safe haven, protecting from the losses we’ve seen in equities and global terror events. However, the price is also being driven by a depreciating Sterling. The domestic currency has lost ground with almost all major currencies except the Euro which seems to be holding up the white flag. This is in part due to super low inflation and the acknowledgement that interest rates not only don’t need to increase, but any hike would damage our fragile recovery. Analysts suspect that rates will stay at record lows for the next 18 months at least. This is great news if you’re looking for a loan with record low interest rates. However, for the investments in 2015 it means deposit rates are near zero. With the General Election in May and no one party pushing ahead in the polls, the possibility of a hung parliament will exert further pressure on Sterling.
For those seeking protection from a weak currency, gold investment not only diversifies away from holding all your assets in Sterling, but also directly benefits from a falling currency value.
By far the weakest region is Europe. It has lagged well behind the UK and US in recovering from the credit squeeze of recent years as it looks to simply survive. The worst affected countries like Greece, Spain and Portugal have suffered hardship not seen in generations with record unemployment figures. So far the stronger countries like Germany have stuck by the weaker ones in the hope of somehow coming through the storm with the Euro intact. However, 2015 could well see the entire region finally explode under the pressure. Already the Swiss have shocked markets by losing faith in the Euro, decoupling from its own currency. As a major pillar of Euro strength, the Swiss Franc being pulled away could well lead to the entire building crashing down. Certainly with the Swiss turning their back, there will be many Germans also tempted to go it alone. Not a great prospect for investments in 2015.
Speculation is mounting that Greek elections this coming weekend could see them leave the Euro and consequently tear up its austerity agreement. Greece’s promise to pay back loans through squeezing the country of its finances has been met with huge resistance from the public who suffer continued hardship day to day. Such a move would cause losses world-wide for those exposed to Greece and its banking system. Rumours abound that further Quantitative Easing is being prepared for the Euro in the wake of such events, which would further contribute to its demise in global perception.
But what do Europe’s woes mean for our investments Firstly, UK investors are suffering from huge falls in their stock and bond values which have elements invested into Europe. In today’s globalised markets there is always a huge impact globally if any particular region crumbles.
As our largest export market, we will also experience continued drops in demand for our products and services from Europe. Not only will European consumers have less disposable income but their weaker currency will also mean that our exports become expensive.
It seems then that 2015 could provide Gold’s perfect storm
so it makes sense to hold some tax free gold coins to diversify away from Sterling and receive better returns than deposit rates. Gold has outperformed inflation in 8 of the past 10 years, better than any other asset class and could again be one of the winning investments in 2015.
With pension freedom arriving this year, it also makes sense to allocate some of your pension pot to physical gold bullion. That way any market volatility will be ironed out by gold’s safe haven status, meaning protection for your pension value and predictability for the year ahead.
Daniel Fisher formed physical Gold in 2008, after working in the financial industry for 20 years. He spent much of that time working within the new issue fixed income business at a top tier US bank. In this role, he traded a large book of fixed income securities, raised capital for some of the largest government, financial, and corporate institutions in the world and advised the leading global institutional investors. Daniel is CeFA registered and is a member of the Institute of Financial Planning.