Tensions on the stock markets are driving us to look for safe alternatives. Government bonds and gold: strengths and weaknesses of both assets to date.
The markets seek protection and do so by turning to the usual defensive assets: gold on the one hand and US Treasuries, US government bonds, on the other, while for the euro bond the the alternative are inevitably the EU governments with the highest rating.
The night’s news of tensions even from primary banks overseas, such as Bancorp - the fifth largest credit institution in the USA - increase the search for risk aversion, which unfortunately does not find alternative solutions to the two mentioned, because the financial industry continues to neglecting systemic responses to this type of orientation by investors in delicate phases such as the one that could occur in the short/medium term.
Invest today in gold and government bonds
What can the small and medium-sized savers do? Identify some safe assets and enter with staggered purchases on the trend of prices.
From this point of view, Government bonds undoubtedly have various advantages:
- lower volatility average
- possibility of even very short deadlines
- major issuer differentiation.
Is gold then displaced? Far from it, because the liquidity of the instruments referring to the precious metal is clearly higher than that of government bonds, especially in the presence of exasperated market tensions. So its advantages are antithetical to the Bund et al. option. Furthermore, the hoarding of the richest countries in the world is aimed above all at gold, while for some time it has been tending to reduce recourse to, for example, US Treasuries, for complex reasons, which can be identified in geopolitical choices.
Investment strategy
It is useless to hide that certain tensions felt on the markets in the last week have brought to mind the Lehman events and this is demonstrated by a purely statistical fact: on search engines the unfortunate name of the US bank, which went bankrupt in 2008, has returned to being among the most clicked on Google and colleagues. With an inevitable correlation: the tensions in the US credit system also have repercussions on the dollar. It is therefore better to avoid exchange risk, which entails the need for gold either to buy physical metal or to alternatively turn to the Etc hedged €/$, which are not always highly liquid though.
The solution of the EU governments finds in this phase a strong point to be grasped without hesitation: it is that of the yields of the short part of the various curves. A German Bund 1.5% Mg24 Eur (Isin DE0001102358 – AAA rating) with a yield of 2.5-2.6% is a reassuring answer, also because it involves tax compensation for any minuses, which is added value more. A Netherlands 2% Lg24 Eur (Isin NL0010733424 – AAA rating) with the same yield levels is an equally reassuring hypothesis, as are those of countries such as Austria, Belgium and Finland, as well as supranationals such as Bei. In the context of the latter, we point out for example how the 3% Ot33 Eur (Isin XS0975634204) has achieved an excellent performance in a few hours, going from 100 to almost 102 euros.
Why bet on both gold and government bonds
Adopting a lifejacket in rough seas is necessary, without exaggerating the choice. It should be noted that short bonds are almost a certainty in terms of low volatility, while gold still has a speculative component, which can nevertheless accentuate its protective role in the presence of an acceleration of tensions . Combining them a good result is obtained, provided nevertheless that well-defined "stop loss" are imposed on gold instruments - except in the case of possession of physical gold - because the violent variability of prices is their weakness under certain conditions of market evolution.
Original article published on Money.it Italy 2023-03-24 14:19:00. Original title: Investimenti: come proteggere i risparmi puntando su oro e titoli di Stato
