While the FTSE 100 has experienced a market crash over the last couple of months, many investors have rushed to buy gold. Indeed, investors may feel the precious metal offers a superior means of generating high returns over the long run.
With the world economy facing an uncertain future, the yellow metal appears to offer more stability in times of unpredictability.
Certainly, if the coronavirus crisis leads to a prolonged global depression, now could be an excellent time to buy gold. However, purchasing bargain FTSE 100 shares could be a better option in the long run.
Time to buy gold
Investors tend to rush to buy gold in times of panic. This can send the price of the precious metal skyrocketing in times of crisis. But this does not last. Investors buy gold in times of uncertainty, and sell gold when things settle down again.
As such, the metal does not make a particularly good investment over the long run. Over the past few decades, the FTSE 100 has produced a far superior performance.
That being said, the FTSE 100 has seen many peaks and troughs during this time. However, the index has a solid track record of recovering from every one of its bear markets.
In fact, after every bear market, the index has gone on to make a new high. Sometimes it has taken several years for the index to return to previous levels, but it has always come out on top.
If sentiment towards equities begins to improve, investors could become less risk-averse. That might reduce the demand for gold. Investors who were so eager to buy gold a few weeks ago might suddenly rush for the exit.
That would be bad news for the gold price. It would be good news for the FTSE 100 on the other hand.
The time to buy gold may have already passed.
So, while it is difficult to tell what the future holds for the global economy in the near term, in the long run, it is highly likely that the economy will recover. The FTSE 100 should follow suit.
This implies that now could be an excellent time to take advantage of the market’s recent decline and buy FTSE 100 stocks.
Buying the index as a whole, rather than individual shares, may be the best solution for investors. Some companies may not survive the coronavirus crisis. Others could emerge from the crisis in a stronger position.
Trying to pick winners and losers is a challenging process. Even the professionals get it wrong regularly. The best solution is to buy the whole index.
All in all, while it may seem sensible to buy gold in the short run, equities are more likely to improve your financial situation over the long term. After recent declines, now could be a great time to buy the FTSE 100.
Rupert Hargreaves 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.