The FTX collapse has shined a bright light on the cryptocurrency markets and their worth as a part of a diversified portfolio. Indeed, Bitcoin (CRYPTO: BTC) has been on a bit of a choppy ride over the past few weeks, as FTX and broader market fears sent digital tokens a step closer toward what’s sure to be a very chilly crypto winter. As crypto brokerages feel the pinch in a post-FTX world, it’s not too hard to believe that investor trust in crypto is sinking, and fast!
I’ve never been a fan of anything crypto related. In numerous prior pieces, I’ve urged investors to take Warren Buffett’s words of advice when it came to the digital asset. Buffett is no fan of crypto and probably won’t be tempted in the slightest as Bitcoin, and the broader basket continues to sink further into the abyss. At best, cryptocurrencies are a speculation for experienced traders. At worst, they’re an asset that introduces (rather than reduces) risk in a portfolio.
As Bitcoin and crypto continue to go out of style among young investors, I’d look for gold to make a comeback. The shiny yellow metal is time tested, and it’s been picking up momentum in recent months. Though gold prices took a bit of a hit over the last week, I think a new upward trend could be intact, as investors seek shelter from all the asset classes out there that are folding.
Gold: Could 2023 be a comeback year?
From bond funds to Bitcoin, it’s hard to shelter from the volatility hailstorm in this kind of market! On a relative basis, gold has been a steady performer. And I suspect more of the same, as we live through what could be the last two years of elevated inflation and recession jitters.
Between Bitcoin and gold (many viewed Bitcoin as the new gold), I continue to stand by gold. While I expect an upbeat year for precious metals versus most other asset classes, investors should temper their expectations, as gold doesn’t tend to make anybody rich. The asset can help you stay rich, though, especially as the tides go out.
With that in mind, gold’s a fine diversifier to hold with a small portion of your net worth. The ballpark range is 1-5%.
How to invest in gold
There are a number of ways to expose yourself to gold. Owning physical bullion is arguably the most fun way to expose yourself. Still, there are security concerns over storing gold, and the lack of convenience may be a concern for some. There are trusts out there that entitle you to gold. These trusts trade on public exchanges the same way as a stock or ETF would. Still, you’ll have to pay a management expense ratio (MER) for such exposure.
Finally, gold stocks (miners) are a great way to bet on gold if you don’t mind wild swings. In a gold bull market, gold stocks like Agnico Eagle Mines (TSX: AEM) are the way to maximize potential gains. It’s not just the upside potential that makes me favour the miners. Names like Agnico offer dividends (yielding 3.07% today) that are too good to pass up.
Yes, gold miner stocks have more downside risks than bullion. But at the very least, you’ll be the one getting paid for holding onto shares, rather than some fund managers. At today’s modest valuation (14.7 times price to cash flow), I think AEM stock is a steady dividend payer and one of the cheapest (and best) ways to gain gold exposure.
Bottom line
Bitcoin has had its time to shine. Now, it’s gold that could be back in a groove. The miners are my favourite way to play the space. However, I’m not against owning a few gold coins, provided you have a safety deposit box handy at your local bank!
