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Equities and bonds in, gold out?
As experienced investors know, successful investing is about buying low and selling high (not that it’s always so easy, of course). It seems that gold – the ‘must have’ commodity in recent years – may be losing its lustre. Investors appear to be losing their enthusiasm for the precious metal as signs of improvement in the US economy tempt them away to other investments.
Interest in gold has seen the price of an ounce rise from $253 in 2001 to almost $2,000 in 2011 but the metal has fallen sharply this year, hitting a low of $1,627 last week. Senior gold traders believe prices could fall to as low as $1,450.
So are equities in?
Private investors in Britain have, according to Capita Registrars, been buying shares again in recent months to add to the £223 billion worth already owned. Rock-bottom savings rates and attractive dividend yields have encouraged investors to buy more shares.
Looking at the long-term picture, it is worth noting that, at 17%, the amount institutional investors have allocated to shares has hit rock-bottom in recent times compared to around 60% back in 1990. From a contrarian perspective, buying an asset which is unloved almost to the point of loathing creates significant long-term opportunities.
Corporate bonds also fell out of favour back in 2008 but in recent times they have recovered from their lows as investors seek out more attractive sources of return.
Zak Summerscale of Babson Capital manages a portfolio of primarily US senior-secured debt for St. James’s Place and gave this view. “While concerns on a macro level still exist, corporate fundamentals continue to exhibit strength. We have witnessed another quarter of strong corporate earnings that have helped maintain market momentum through March. Furthermore, this has been supported by strong investor demand for high-yield bonds, providing a solid technical footing to the market.”
View this week's Market Bulletin (PDF) to find out more.
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