The gold price is surging again, but that doesn’t tempt me. I’d rather buy dirt-cheap FTSE 100 stocks that have been falling lately. But does that make sense?
Surely it would be wiser to buy an in-demand asset such as gold? You might think so, but I don’t. Gold may be racing towards its all-time high, but that makes me wary rather than excited.
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By contrast, the FTSE 100 has been sinking again. Investors fear Covid-19 hasn’t been licked. They dread another lockdown. Instead of a V-shaped recovery, we may get an unruly scribble. It could end in another stock market crash.
Despite that, I reckon today’s dirt-cheap FTSE 100 stocks look a more tempting option than buying into pricey gold.
The gold price is near its record
Today, the precious metal trades at $1,763. That is the highest level for more than seven years. Long-term investors have done well out of gold. The precious metal is up 25% in the last year, and 50% measured over five years.
There are good reasons why it is shining today. A resurgence in coronavirus in the US, Latin America, Germany and others has spooked stock markets. The uncertain US-China trade deal adds to tensions. Also, 10-year US Treasury bonds yield just 0.69%. This reduces the ‘opportunity cost’ of holding gold, which does not pay any interest at all.
There is another reason the gold price is climbing. To combat Covid-19, central bankers and governments around the world have unleashed fiscal and monetary stimulus on a scale never before seen. Many investors think this will trigger inflation further down the line. Gold is a traditional inflation hedge. You cannot print it, as you can with fiat currencies.
I’d still buy dirt-cheap FTSE 100 stocks
I see why the gold price is rising, but remain wary. I am always reluctant to buy any asset class when it looks this expensive. It leaves you vulnerable to a correction. I prefer to go shopping for bargains. Right now, that means FTSE 100 shares.
The index is still almost 20% below its January peak. It is full of bargain stocks, just waiting to be snapped up. I have highlighted some of the best FTSE 100 bargains in other articles. Companies such as Diageo, Unilever, Informa and Legal & General Group.
There are other dirt-cheap FTSE 100 stocks worth considering. I would target firms with steady revenues, loyal customers, strong defensive ‘moats’ against competitors, manageable debt levels and ideally, a continuing dividend payout. These factors all point to a company that is well placed to survive today’s recession, and thrive in the aftermath.
Many serious investors will want some exposure to gold. Maybe 5% or 10% of their portfolio, to balance risk elsewhere. But in the longer run, I believe the FTSE 100 will deliver a superior combination of capital growth and income.
That’s why I am buying FTSE 100 stocks while they are still dirt-cheap.