Gold, commodities and Bitcoin amid sustainability panic

Two years of pandemic haven’t sunk the global economy completely but they certainly haven’t helped. From winter 2019 to the present, the world seems to have stumbled into what we might call in jargon the “Perfect Storm”. In this context, gold, commodities and Bitcoin have swung between moments of panic and sustainable.

Recap

Covid has been accompanied by a series of problems that have gradually accumulated. 

These include inflation, energy and commodities crises and, as of 24 February 2022, unfortunately a major war in Europe between Vladimir Putin’s Russia and Volodymyr Zelensky’s Ukraine. 

Obviously in this climate, the stock exchanges have not rejoiced, especially the Russian one, which has been closed for days but will reopen on Monday. 

The rise in the cost of raw materials and the energy crisis due to a mix of factors (inflation, war, supply difficulties, growing demand, green tradition, etc.) have also brought the West to its knees, especially Europe which finds itself at home in a war with the largest supplier of gas (40/50%) and the second-largest supplier of crude oil (30%). 

The situation is not one of the rosiest and perhaps could not have been foreseen, at least as far as Pandemic and War are concerned, but there are things we can do to counter the negative trend. 

Everything collapses but gold does not

The consequences of this “Perfect Storm” are felt in every latitude with rare exceptions (South Africa, some Latin American countries and some Asian countries). 

Stock exchanges around the world are losing ground and experiencing a period of great volatility, but there are safe harbours to which to “dock”. 

Big tech, military and intelligence companies and special stocks such as the SNB, which is the listing of its central bank on the Zurich stock exchange, can offer real opportunities and help diversify. 

Another lifeline is of course the purchase of safe-haven assets such as precious metals (gold, silver, palladium, etc.) and to some extent Bitcoin, but with some caveats. 

Gold, which has always been considered the ultimate safe-haven asset, has not failed to live up to expectations this time either, reaching its peak on two occasions since the start of the Russian invasion/special operation. 

According to all investors, the yellow metal is destined to grow both in the medium and long term, due both to its natural characteristics (limited, precious, resistant to time, etc.) and to the geopolitical context. 

The world is heading for years of major changes, including geopolitical ones, and the crisis in Ukraine will certainly not be resolved in the short term, and sooner or later this impasse will be compounded by tensions between China and the United States over Taiwan, the world’s largest producer of microchips. 

But how much gold should you keep in your portfolio? Analysts tend to answer “it depends”. 

The percentage of stocks that make up one’s portfolio is fundamental in determining how much gold (physical and otherwise) to hold. 

For example, in a 30% proportion of equities, it is desirable to have about 10% invested in gold and the same in premium currencies such as the Swiss franc (not the dollar or the euro, which are too involved and risky at this time in history). 

For example, during the Cold War (a situation that is in some ways similar to today’s) it was very popular and effective to divide the portfolio into macro groups. 

A mix of emerging market and US equities, commodities, gold, currencies, etc. was very popular and effective in order to smooth out any shocks and limit losses. 

Gold, however, is not the only metal to knock on the door; in fact, we can turn to some of its relatives, such as Silver and Palladium, both of which have played a positive role over the last two years and which show no sign of stopping their run. 

Palladium in particular deserves a special mention as 50% of the world’s demand for it is mined in Russia, which obviously has the world’s largest reserves (and the world’s second-largest reserves of gold). 

Bitcoin, on the other hand, is a separate chapter and we will see the reasons why. 

Bitcoin: the role of a safe haven asset in times of panic

The cryptocurrency par excellence is often associated with safe-haven assets and gold in particular (with due distinction) also because of similar characteristics. 

BTC is by its nature designed to be a finite asset that has limits to growth just as the above metal is a finite asset; this characteristic makes them valuable in a broad sense and thus appreciable in the eyes of investors. 

The virtual currency, however, unlike the precious metal, has lost about 10% since the outbreak of the war and suffers from great volatility that prevents it from becoming a “safe haven”. 

This short-term volatility, however, contrasts with its long-term reliability, and here I would like to separate the two. 

While in the short term it can lose out and suffer more from the global environment, in the long term it can be considered a real strategic asset. Having it in the portfolio in the right quantity helps to contain losses in critical periods and it is an excellent investment precisely because of its level of consecration in the markets and its being limited in quantity.