The performance of global stock markets thus far in 2018 can best be described as ‘volatile’. The S&P 500, FTSE 100 and various other major indices have seen their price levels experience a rollercoaster ride in recent months.
There are a number of reasons for this. Tensions in Syria have increased in recent days, while the threat of a potential US-China trade war has also caused investor sentiment to come under pressure. Additionally, rising inflation in the US as well as higher interest rates mean that the prospects for global growth could be less impressive than previous forecasts.
Further volatility could be ahead, which is why gold mining shares could be a sound investment. Even for the most bullish of investors, dedicating a portion of a portfolio to defensive assets could be a sound move for the remainder of the year.
Geopolitical risks have increased significantly in recent months. Tensions between the US and Russia have been heightened by events in Syria and, at the time of writing, there is the potential for them to rise yet further. This could cause investors to adopt a more pessimistic standpoint which could be reflected in lower share prices.
In addition, there is an ongoing threat of a trade war between the US and China. Protectionism seems to be a central tenet of the Trump administration, with it being a key theme of the Presidential campaign. Therefore, it would not be surprising for there to be further tariffs placed on imports by the US government. The potential for this and its possible impact on global growth could be enough to cause significantly greater volatility in world stock markets.
Recent data from the US suggests that the rate of inflation is moving higher. Although this is expected, firmer wage growth could mean that four, rather than the expected three, interest rate rises take place in 2018. This could negatively impact on growth prospects and with recent jobs data being relatively disappointing, it points to the potential for a general slowdown in economic growth.
Having some exposure to the gold price this year could be a logical move given the potential for continued volatility.
This may have a significant impact upon investor sentiment, since the market seems to have been anticipating continued strong growth. Measures such as reducing taxes and increasing spending were expected to stimulate growth, but they could end up forcing interest rates to move higher and end up being a key reason for greater uncertainty.
With stock markets failing to offer a clear trend, recent volatility may continue. One asset which could benefit is gold. Given the decline in Bitcoin’s price, investors may now switch their attention to gold due to its perceived value as a store of wealth and its track record of performing relatively well during periods of heightened volatility.
For more investment ideas, subscribe for FREE to never miss an issue of the Master Investor Magazine.
Two gold miners that seem to have bright futures and which I hold in my portfolio are Centamin (LON:CEY) and Fresnillo (LON:FRES). They both have double-digit EPS growth forecasts for the current year and could stand to benefit if the price of gold keeps moving higher following its 8% rise in the last four months.
Even for investors who are optimistic about the long-term prospects for share prices, having some exposure to the gold price this year could be a logical move given the potential for continued volatility.