Gold and Cash Lead Flight to Safety

A solid investment in uncertain times.
  • Why it matters

    Why it matters

    Despite the relative safety of cash, gold and bonds, the turbulent markets mean no supposed safe-haven investments offer security post-Brexit.

  • Facts


    • Post-referendum fallout continued in world markets Monday, but European indices gained on Tuesday morning, with Germany’s blue-chip DAX Index up 2 percent.
    • European sovereign bonds were in demand, above all German government debt, with the 10-year Bund currently yielding -0.1 percent.
    • Blue-chip corporate bonds remain in quite good health, not least thanks to the ECB buying program.
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Friday’s crash on the stock market left fund managers reeling. Many stock market indices were down more than 10 percent. Normally financial managers would use the opportunity for cheap deals in the market. But few have dared to put their heads above the parapet. And almost no one is predicting a quick turnaround in the market.

The talk is of a post-Brexit flight to safety. But few asset classes are considered safe in today’s perilous political and economic circumstances.

“It is still much too early to come out in favor of equities,” said Henning Gebhardt, fund manager at Deutsche Asset Management, whose mixed funds now have equity allocations as low as 25 or 30 percent. But some bond classes are also unpopular, with ultra-low and negative yields scaring off many fund managers.

When all else fails, the market turns to cash and gold, two of the biggest safe havens from instability. “In recent weeks we’ve raised our cash allocations from 2 to 5 percent,” said Jens de Vries-Hippen, manager of the share fund Allianz European Equity Dividend. He is not alone in doing so. A Merrill Lynch survey recently showed that, around the world, funds are holding more cash than at any time this millennium.

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