Questor Wealth Preserver: the precious metal’s defensive qualities are a good balance to America’s ‘magnificent seven’ Royal Mint of gold bullion Gold’s performance is slightly ahead of inflation and significantly better than Bitcoin’s gain CREDIT: Royal Mint/PA Wall Street’s recent surge to a new record high has prompted some investors to declare it a bubble ready to burst at any moment. They argue that heightened political risks, sticky inflation and global economic challenges are not fully reflected in share prices.
Others reject the idea that the S&P 500 is grossly overvalued. They point to the growth potential offered by major technology companies, impending interest rate cuts and the US economy’s strong recent performance to justify today’s sky-high market valuations. In Questor’s view, it is impossible for anyone to predict whether further record highs or a market crash are ahead because of the infinite number of variables that can affect share prices in the short run.
Bubbles have previously always burst, but have often lasted for longer than many investors expected. Therefore, it seems logical to maintain significant exposure to shares but ensure that individual holdings continue to offer fair value for money on a case-by-case basis. Furthermore, keeping our Wealth Preserver portfolio’s existing allocation to gold is likely to be a sensible move.
The metal has historically provided a degree of ballast during periods of elevated stock market volatility, hence its “safe haven” status. It is therefore likely to be a popular option among fear-riddled investors during any prospective market crash, which would be good for its price.
Moreover, the gold price is likely to be helped by expected interest rate cuts because they would reduce the relative appeal of income-producing assets such as cash and bonds. Should lower rates fail to materialise in the short run owing to persistent above-target inflation, gold’s status as a store of wealth is also likely to mean it produces favourable returns. Indeed, the metal has generated a gain of 31.4pc in sterling terms since we added it to our portfolio in April 2021.
Although it has benefited from favourable currency effects during that time, the bulk of our return is from a price rise in dollar terms. Its performance is well ahead of inflation; price rises amount to roughly 19pc during the holding period, and is significantly better than Bitcoin’s 15.1pc gain over the same period.
Clearly, gold’s short-term returns could be dwarfed by a surging stock market as investors continue to pile into the likes of Nvidia, the AI chip maker. Ultimately, though, it is likely to be viewed as a highly prized holding if the tech bubble on Wall Street eventually bursts. While AstraZeneca’s shares have risen by 39pc and outperformed the FTSE 100 by 34 percentage points since Questor tipped them in August 2019, they continue to offer excellent value for money.
The drugs maker trades at around 18 times earnings but, according to its full-year results released last month, should produce percentage growth in revenues and earnings in the low double-digits or low teens in the current year.