In the financial markets, confidence is key. If the markets believe your company is set for big things, your share price goes up. If they believe you’re on a downward slide, your share price quickly follows suit.
But what if the markets lose confidence in their own ability to predict what will happen, due to factors outside of your and their control? They get a bit jumpy.
For investors, especially those looking to allocate long-term, this usually means sitting calmly and waiting for a bit more certainty to return. There’s little point selling out if things are going to improve but it’s often difficult to plan a buying strategy.
With global markets currently in a holding pattern – see Covid-19, US vs China, any number of other issues – many investors are finding themselves in this situation now.
But far from there being nothing to allocate to, we need to look a little further afield.
For centuries, the world’s favourite shiny precious metal has been seen as a safe asset and protector of wealth, especially in tough times. Today, this theme continues, and as financial markets tumbled in March the spot price of gold began to rise – and it has barely stopped since.
The price has risen 31% since the start of the year, and reached a record high of $1,943.93 an ounce on July 27 as investors crowded into their financial comfort blanket.
It’s important to note that for most investors, buying gold does not mean having to construct a vault in your cellar. Rather, you take a view on a price it is going to reach and earn the difference when it gets there.
There are also exchange-traded funds that track the price available on the eToro platform, meaning you don’t have to be so precise in your estimates.
Another way to access the asset is via the stock of the companies pulling it out of the ground. These mining stocks – sometimes called “miners” – have also seen their fortunes rise in line with the gold price, and present investors with another way of accessing the opportunity.
Many are predicting it could reach or even exceed the magic $2,000 mark if the current market uncertainty continues – and few are willing to set a date on when this all calms down.
With currencies, investors always need to look at both sides of the deal to figure out what is going on as there is always a play on confidence towards the related economy.
After agreeing to launch the largest recovery fund in its history last week, the European Union has been enjoying widespread confidence that it will be able to support its member states, with the currency of many of them feeling the uplift.
The same cannot be said of the US dollar or UK sterling.
Since the start of July, the euro has gained 5c against the dollar, as its handling of the Covid-19 pandemic has reassured markets and investors. Against UK sterling, it has gained just 1p in July, but is up 6p since the start of the year, marking a 7% uplift.
As can often be the case when a currency rallies against its competitors, several of the region’s stock markets have fallen as investors are technically paying a premium to buy listed companies. They can earn the same premium in their own (lower valued) currency by cashing out holdings, too.
Currency markets are the most volatile but watching national and regional policy changes as the Covid-19 story plays out – along with agreements on trade – should help investors understand the direction of travel.
Another high-flying non-stock-market-based asset is the cryptoasset Ethereum, which has been gaining popularity. Its value has more than doubled in 2020, from $130 to $325, with $100 of this uplift happening in July – much of which was over the past week.
While it’s not always clear what is behind the surge (or drop) in the value of cryptoassets – part of their MO is that they are not connected to mainstream finance, economics or politics – there have been several boosts for the sector in recent weeks.
Firstly, the value of assets held in so-called “decentralised finance” hit $4bn, according to media reports, meaning more people are joining the movement or at least expanding into non-traditional finance for some of their economic activities.
Secondly, this broadening includes some central banks, Wall Street players and even credit card companies who are willing to be part of this new future of finance, which helps increase the number of people involved.
Both these factors push up demand for cryptocurrencies – especially the mainstream assets, such as Ethereum – but remember that all currencies can move rapidly down as well as up.
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