This has been a rotten year for UK shares, and a great year for the gold price. It has risen by around a third this year, breaking through its all-time high of $2,000 an ounce. Despite this, I’ve been urging people to buy shares, and shun gold. Am I completely daft?
I don’t think so. If you’re investing to generate enough money to get rich and retire early, I still believe investing in FTSE 100 shares will prove more rewarding in the longer run than piling into gold. For a supposed store of value, the precious metal is too risky for me.
The gold price can fall just as swiftly as it rises, and stay low for years. It soared in 1979, following the Iranian revolution and Russian invasion of Afghanistan, only to crash 54% by 1982. The price then drifted sideways for the next 10 years. Similarly, gold hit its previous all-time high of $1,837 during the eurozone crisis in 2012. When the crisis eased, it fell 42%, according to figures from FundCalibre.
Here’s why I’d rather buy UK shares
On Tuesday, gold suffered its steepest one-day crash in seven years, dropping 6.6% to $1,865. It has recovered slightly, but this is a shot across the bows for gold bugs. I don’t expect a gold price crash yet, but it could happen. Especially if scientists find a vaccine, and we can finally put Covid-19 behind us.
UK shares have also fallen sharply this year, of course. On 23 March, they were down by a third. They would have fallen further if the UK Federal Reserve hadn’t flooded markets with trillions of dollars of liquidity. Despite the recovery, they’re still 20% below their January high.
During the stock market crash in March, I said buy UK shares. After it recovered, I said the same thing. Sorry if I sound like a stuck record. While I think investors have space in their portfolios for gold, I would never hold more than 5% or 10%, as a diversifier. Remember, gold pays no income. You only make money when the price rises, and that depends entirely on investor sentiment.
The gold price isn’t enough
When you buy UK shares, you’re taking a stake in top businesses that generate the wealth our society is built on. Energy companies, utilities, healthcare, natural resources, food and clothing, technology and telecoms, and property. Not just some shiny metal that sits in a vault.
UK shares give you capital growth when stock markets rise, and dividend income even when they don’t. Some top FTSE 100 companies still offer yields of around 7% a year, despite the recent wave of dividend suspensions. Buying companies like these and holding them for the long-term is one of the best ways I know to build your retirement wealth.
After this year’s market crash, stocks look cheap. Gold seems expensive. That’s another reason to favour UK shares today.
