Is gold still a safe investment?

As with every kind of investment, investment in gold carries risks, which varies depending on the objective of the investor and on the timeframe of the investment.

A long term investor would look at gold as an hedge against inflation and to diversify and balance the portfolio of investment, thus the volatility of such portfolio is hedged and partially protected from high or extreme volatility in the higher risk asset classes, like stocks, leveraging on gold’s “safe-haven” characteristics.

On a short term view, the truth is that volatility has been on the rise all across the board, not only on gold prices, as shown by the stock options implied volatility readings.

Surely the Covid-19 pandemic being on the rise everywhere in the world and the related impact is a prominent factor for the such surge in volatility, but also the upcoming US elections is playing a big role, with a contended election, the outcome stock markets dislike the most, becoming more and more likely.

Gold has been rallying for months driving prices to its highs above $2075 per oz in early August. Investors then started monetizing the gains and the reduced demand of gold from the High-tech industry brought the price down.

Technically speaking the medium-long term trend is still intact, while the short-term steep uptrend has been broken. One of the possible reading of the situation is that the market might have absorbed an excess of buying pressure which brought prices in the overbought area, and are waiting to asses the situation in order to drive their “bets”.

Levels to monitor in this view are $1860, $1800 and $1740 areas, with the latter being the most important to keep the short term bullish chances alive.

The impact on the polls of the upcoming presidential debates in the US will most probably be a market mover for stock and gold, as it will shade some light of the real chance of a contended election (bearish stock, bullish gold).

Also, stocks of top tech companies have shown a lot of variations in last two weeks drop as low as 21 percent last week and skyrocketed for a few up to 40 percent. So what does it mean for the tech industry and the innovation?

As mentioned above, volatility is all across the board, and tech companies, which have been leading the stock market recovery, had to give in as the investors consolidate their gains as they face a period of uncertainty.

From a fundamental point of view, not much has changed for such companies, which will continue in their leading role within the global economy. Truth is that the recovery has been very fast and some valuations in terms of P/E seem really stretched to the upside, anticipating future gains in the range of several multiples of the actual profits.

In some cases, profits are not even there, and the evaluation is almost exclusively based on speculations of what such firms will achieve in the future. The QE by the central banks is playing a big role here, as well as for more than a decade. Tech stocks have proven to be less correlated to the consequence of the first wave of the pandemic, but many investors are trying to understand if the consequences of the first wave are really all factored in (I do not think so) and what would be the consequences of a second wave and how it will impact also on tech companies.

As for innovation, nothing will stop it and research will continue. Most of the tech companies are sitting on a pile of cash and have the strength and the possibility to keep up with their plans. Just, the hyper optimism which characterised their stock might, at least partially, fade as uncertainty rises.

Roberto d’Ambrosio is CEO, Axiory Global