The FTSE 100 is in freefall again! This is what I think you should (and shouldn’t) do

Deary, deary me. Those desperately hoping for a calm end to 2018 following the stresses of October, or even a possible Santa Rally, will be left with their heads in their hands following the start to the new month.

The FTSE 100 has rallied in end-of-week trading as bargain hunters have come to the fore, the index having closed at two-year lows around 6,700 points on Thursday. But there are many tipping this as a so-called dead cat rally given that the prevailing worries — from the impact of Federal Reserve rate hikes to cooling economic output in China — are not likely to evaporate any time soon.  

Some Sage advice

We here at The Motley Fool see this as no reason to panic. Right now, there’s some truly brilliant stocks out there trading cheaply, and I would argue that this is a great time to buy.

As stocks guru Warren Buffett once famously advised, it’s a good idea to be “fearful when others are greedy, and greedy when others are fearful.” Even if you have a low tolerance of risk, now is still a great time to load up. There are shares out there that could thrive in the current tense environment.

Take Footsie shares Randgold Resources and Fresnillo, for example. They’ve actually thrived in recent sessions while the rest of the market has gone to hell in a handcart, with the former now dealing at its highest price since the start of 2018.

Precious metals are an established rush-to-safety in troubled geopolitical and macroeconomic times like these, and a great way to play this theme is to buy into the producers of these safe-haven assets. Gold prices rose to their highest in five months, above $1,240 per ounce, this week and latest demand data suggests that further gains could be just around the corner.

The World Gold Council declared earlier this week that holdings in gold-backed ETFs and similar products across the world jumped by 21.2 tonnes in November to 2,365 tonnes, the second successive month of gains.

Of course, you could buy into gold or silver directly, but the physical metal just sits there and does not offer a dividend. Randgold, by contrast, offers an inflation-smashing yield of 3.9% for 2019 at the moment.

Commodities clangers

Some of the FTSE 100’s other listed commodities plays offer jumbo dividend yields too. Rio Tinto smashes the readings of the precious metals specialists with a yield of 6.4% for next year, as do corresponding yields of 6.1% and 4.7% for Shell and Anglo American respectively.

Investing in companies that specialise in pure industrial commodities is extremely risky, though. While the indispensable nature of commodities like oil, copper and iron ore means that the share prices producers of such materials can also rise in risk-off times like these, right now, existing fears of oversupply in these markets have worsened. That has happened amid rising signs of a global economic slowdown as well as a ratcheting up of trade tensions between the US and China and looks set to keep pressing commodity values as we enter 2019.

In the current climate I see further scope for these stocks to continue sinking in the weeks and months ahead. If you want to grab a slice of the commodities complex then buying into the gold and silver diggers is the best bet, in my opinion.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.