May 31, 2018

Safra likes commodities, I buy Randgold

Today Obermatt CEO Dr. Stern received the Institutional Spotlight Report of Bank J. Safra Sarasin, the family-managed bank from Basel and Brazil. Like most Swiss banks, they are good at conducting research. It’s worth subscribing to a few of these reports, they are a good source of additional information.

Safra recommends investing in commodities: According to the bank, they are not only a good form of investment, but also have a good correlation with the inflation trend. In other words: When inflation goes up, the prices of commodities increase as well. And inflation could rise at any moment, in some areas it has even started already. However, nobody knows when exactly it will strike for real. Not even approximately.

The problem is that inflation is important for investors because higher inflation means rising interest rates from the national bank and therefore falling stock prices. That means that anyone who has many stocks and obligations can use commodities to secure against the inflation risk, especially since they are, as stated by the economists from Safra Sarasin, very cheap compared to stocks.

At the same time, Safra states that commodities will collapse in a recession. Initially, Dr. Stern found these two statements conflicting. Now he thinks he discovered the reason: Half of the global raw material market consists of oil, which is used by the economy every day in large amounts – in contrast to gold. For this reason, when the economy is doing well, the oil price goes up. If it isn’t – as is the case in a recession – it needs less oil, and the oil price sinks. But this only applies for oil. Not for gold. Its price increases during a recession because investors sell their securities and sometimes exchange them for gold.

If you only compare the gold price with the stock market, it increased during five of the last eight stock crashes. As the popular stock website Marketwatch shows, this reversed correlation is very strong right now, which suggests that gold is currently a good measure to avoid having too many stocks in one’s portfolio.

For this reason, Dr. Stern has decided to buy his third gold stock for his third investment season, his «hedging season». It’s Randgold from South Africa, because he believes that the future looks good for Africa. In addition, Randgold has a combined rank of 83. That’s why he's buying 60 stocks of Randgold for around USD 4,600 on the US markets.

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