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While you may feel detached from proceedings in Ukraine while reading about the crisis in your comfy slippers, it may have a more direct impact on your life than you realise.
Momentum in a UK recovery is building, so we can’t blame ourselves for thinking that our investments are on a steady path upwards. But continued political and economic unrest on the global stage will directly affect our recovery and the value of your assets, including your gold investment.
The way investment markets have evolved over the years, means that various
regions and different products now overlap and intertwine with one another. Investing in an Asian bank stock may be impacted by the performance of a European bank due to the Asian bank’s exposure to that European bank.
Similarly, the performance of a UK stock may be impacted by events in the US, as America may provide a large part of the UK company’s export business. You could even see the value of your ISA fall due to the possible change in sentiment something like the Ukraine crisis could cause.
Russian stocks have suffered a 15% fall since the Ukrainian developments. While most UK investors may not hold these shares directly, they may unwittingly own some through funds. Eastern European shares have also suffered from 10% declines, while the US and emerging market indices have been flat. The length of time the crisis takes to resolve will affect how quickly these shares will get back on track. A prolonged crisis could see further declines.
If matters in Ukraine are resolved quickly and amicably, then the UK property juggernaut will be unaffected by the crisis. However, it’s well known that the heart of the UK property market beats in London. The capital has seen the largest price rises and is predicted to enjoy the biggest increases over the next few years. One of the main drivers for London’s property boom is Russian money. The super-wealthy Oligarchs have invested billions into the very top end of the housing market. This huge cash injection has single-handedly pulled up the rest of the market into prosperity.
While the UK is currently trying to avoid condemning Russia for its aggressive stance, a prolonged situation may well force politicians to deal with the situation. Their motivation for appeasement is to maintain the Russians’ investment in the Capital. However, there may come a time in the not too distant future when we’re forced to condemn their actions and even become involved militarily. Undoubtedly, this could lead to a withdrawal of Russian funds and a collapse of the so-called property boom.
Renowned as the safe-haven asset of choice, gold has been one of the few beneficiaries of the crisis. Prices have risen a modest 0.5% but the prospects for gold in 2014 have increased significantly in the face of Ukrainian developments. Investors are watching events closely, so gold will likely prove volatile in the short term as every move is scrutinised and then reacted upon. However, the downside risk, especially when you factor in gold’s decline last year, is very limited. Meanwhile, the potential for it to rise much higher is significant. If military action is used and if the crisis becomes protracted, then gold is likely to rise further. The real catalyst could come if the UK and the US are forced to become involved.
Either way, I’d say that reacting to the developments by selling investments is too hasty. Ideally, a spread of asset classes and regions should help protect the value of your portfolio from events. Certainly, an allocation, of physical gold provides a further degree of protection and comfort.
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.