● It’s been a rough week for most markets, and a particularly vicious one for gold. The yellow metal saw its price fall by about $100 an ounce over the past week, as investors fled to the safety of the dollar and dumped just about everything else. Gold is now sitting well below its all-time high of earlier this year.
So regular readers might be a bit unnerved to hear that MoneyWeek’s editor-in-chief Merryn Somerset Webb is selling some of her gold. She explains why in the current issue of the magazine. Subscribers can read about it here – if you’d like to become a subscriber and get your first the issues free, just click this link.
● But before you get worried, the crucial word here is ‘some’. The fundamental argument for holding gold as insurance against a financial meltdown has not changed. Indeed, this week’s panic shows that the financial system remains as insecure as it did back in 2008 (I wrote about some of the reasons for this in Thursday’s Money Morning: How to profit as investors run for cover. To find out why you’ll probably be hearing the word ‘hypothecation’ a lot more in the near future, have a read of the piece). In 2008, gold also took a hit as people rushed for liquidity, but it rapidly recovered.
So why’s Merryn selling some of her holding? Well, she has been a fan of gold for a long time – since the start of the bull market in fact – so her holding has grown in value quite significantly. I suspect the same goes for a lot of MoneyWeek readers. And while we’re fans of gold, we’ve never suggested that you should be 100% in the yellow metal – it’s just plain silly to stake your entire financial future on it, or any other single asset.
So regularly rebalancing your portfolio makes sense. To me, having around 10% of your portfolio in gold is a good idea. Certainly, if gold on its own accounts for 30% or more of your portfolio, I’d suggest you at least consider moving some of your money into other assets (maybe some of the high quality blue-chips we’ve been tipping for a while now).
By the same token, if you have a lot less than 10% in gold, then maybe you should think about buying some. I know I am – although I’m keen on gold, I’ve never quite got round to buying as much as I’d ideally like to. Now looks like a reasonable time to start topping up my holding.
● Our spread-betting expert, John C Burford, is an outright bear on gold. That puts him in the minority as far as MoneyWeek staff go, but he’s done well out of it this week. In his MoneyWeek Trader email, he’s been explaining how to interpret the chart formations – I have to say that some of his calls have been quite uncanny. He’s also done well on the direction of the pound this week.
If you’re at all interested in trading, you should sign up for his email right now. But even if you’re not, his insights into money management and the emotions that drive markets on a day-to-day basis are useful for all investors. The email is completely free – sign up now if you haven’t already.
● Meanwhile, you should also get yourself some exposure to the US dollar. We’ve been arguing for months now that the dollar would recover this year, and now it seems to be on a tear. Why? Investors are looking for liquidity and ‘safety’.
But they are also looking around the world and realising that they don’t have many other places to go. The ‘hot’ emerging markets are all in the doldrums: Brazil, India and China have all suffered badly this year. Europe is a basket case – the French reaction to Britain this week (calling us childish one day, then the next day trying to ‘grass us up’ to the credit ratings agencies) was a hilarious yet terrifying indication of how completely out of touch the region’s leaders are. And Britain isn’t in a much better state.
So that leaves the US. However, America does face some tough times ahead. In particular, the first quarter of 2012 could be difficult.
That’s why, if you’re going to bet on the US, I’d opt for dollar-exposed blue chips, and big healthy US companies that can withstand a recession. Also, if you’re feeling a bit more adventurous, you could investigate exchange traded funds that allow you to bet on a rising dollar. I suggested looking into the Short Aussie Dollar ETF (LSE: SAUP) last week: How to profit from China’s slowing economy. Since then it’s already ticked higher, but could have a lot further to go, particularly if China is facing a hard landing.
● Of course, there is another major global market to consider: Japan. I was chatting to MoneyWeek regular James Ferguson about this last night. One of the problems for the Japanese stock market in general has been the strength of the yen. For a long time now, it has been the ultimate ‘safe haven’ currency – the one that rose most when the market is in ‘risk-off’ mode.
But if the dollar has turned a corner, and the yen finally weakens significantly against the US currency, this should be good news for investors in Japan. So as well as getting some exposure to the US, I’d hang on to your Japanese holdings.
You should also read Merryn’s interview with Baillie Gifford’s John-Paul Temperley, which was in the last week’s magazine. He explains why Japan is a buy and also gives us one of his top tips – subscribers can have a look at it here: Why you should keep buying into Japan.
● How else can you turn the eurozone crisis to your benefit? In his Right Side newsletter, Bengt Saelensminde has an interesting idea.
“How long do you think the euro can survive?” he asks. “I’ve been looking for a way to have a punt on a euro breakup. I’ve pointed to a number of trades in Right Side in the past – including shorting banks and the FTSE”.
Now Bengt reckons he’s found another way. Again, it’s using spread-betting. “Spread bet dealer Worldspreads is taking bets on the euro breakup”, he says. “According to them, there’s less than a year to go before the first member leaves”.
And here he gives you chapter and verse on how you can go about taking that bet. Oh, and if you’d like to receive the Right Side on a regular basis – it’s completely free – just click this link.
● “One of the stock market’s most intriguing penny shares.” That’s how my colleague Tom Bulford describes one of the company’s he examined in his Penny Sleuth newsletter this week.
Tom is talking about a UK building materials firm that’s “found a way of turning cheap, fast-growing softwood into the sort of durable hard wood sought after by architects, builders and joiners alike. The application of acetic anhydride alters the properties of the wood without altering its chemical content. The end result is a product called Accoya that is hard-wearing and easy to work with”.
Sounds good. Yet the company’s shares have been a “perennial disappointment”. But that could change for the better in 2012, as Tom points out: Watch this intriguing penny share in 2012.
And if you’d like the receive Penny Sleuth on a regular basis – once again it’s completely free – you can do so here.
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