In your daily analysis of the financial media, you often see articles promoting investments that are supposed to do well when the stock markets crash. Gold is one of the most common. The bright yellow metal is widely assumed to be a pillar of stability against falling stocks.
With two months of instability in 2020 already, gold has been a popular recommendation for investors looking for alternatives to stocks. However, Khofiz Shakhidi does not agree with these opinions. In his opinion, today gold is a raw material that does not possess any special power, and he does not think it makes much sense to investors who need long-term portfolio growth.
The main misconceptions about gold
Many theories consider that gold is good protection against different market environments. When investing, a hedge is something you own to minimize the risk of other investments. For example, if you own stocks and their prices drop, a hedge must either keep its value or increase. In the case of gold, many investors think that the price of gold works well both in inflationary periods and in deflationary periods. Some think that gold is the asset to possess when political uncertainty is high, during bear equity markets (prolonged market declines of more than 20% due to deterioration in fundamentals) or when a calamity occurs. This assumes that gold has many investment skills!
Don’t let the glitter fool you – don’t think there’s anything special about gold. If you take away the shiny appearance, gold is a raw material, in the same category as pork bellies, oil and copper only with fewer practical uses. Raw material prices, like any other asset, rely on demand and supply. The demand for physical gold is mainly driven by its cultural relevance, with jewellers being the main beneficiaries.
The choice of Khofiz Shakhidi
If you are looking for a long-term portfolio growth a good choice is to invest in environmental, social and governance (ESG) field. Today most corporations invest in the so-called “green gold”. And this is not just a new trend, but the fundamental philosophy of a modern company: the movement from sustainable assets to environmentally conscious activities.
According to Khofiz Shakhidi, gold is already in the past. It was replaced by a new model, which lies in combining digital information with the environmental practical activities of the company. Proof of this is the independence of such organisations from market fluctuations.
In addition, modern fintech activity is a vivid example of the fact that the gold standard has lost its former glory. Companies are increasingly using technology to build an entire digital infrastructure: their services do not end with issuing cards or bank accounts. And this is the only effective approach. For example, the majority of investments made by the digital bank of Khofiz Shakhidi are other digital services that allow building a unique ecosystem around each client.
Investments in gold cannot ensure the constant presence of the company in human life, but the fintech ecosystem covers many parts of a person’s daily life, from a cafe near home to move to another country. In the age of technology, companies have to look for different methods and technologies for success.
Gold does not shine as an investment for today’s investors
The old school continues to recommend gold as an investment, especially in times of volatility. In Shakhidi’s opinion, this position is wrong. He does not believe that gold is the way to generate long-term growth that many investors need to achieve their investment objectives. It is also not viable as a hedge against unstable equity markets. That, for us, makes the favourable argument for having gold quite flimsy.
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