Should You Buy Gold And Bond ETFs After Brexit?
Britain’s decision to leave the European Union caught the market flat footed last Friday. The sterling got pounded to a 31-year low and stocks plunged after the vote. Jittery investors piled into so called safe haven assets including government bonds and gold.
At one point, gold saw its biggest spike since the financial crisis of 2008. Gold is now at a 2-year high. The 10-year note yield is now not far from the 1.38% record low reached in July 2012.
Both these safe haven assets have been in favor with investors this year due to global economic and political uncertainties. Two popular long term government bond ETFs—iShares Treasury Bond ETF (TLT - ETF report) and Vanguard Treasury Bond ETF (VGLT - ETF report) are up almost 15% year-to-date while the popular gold ETFs SPDR Gold ETF (GLD - ETF report) and iShares Gold ETF (IAU) are up about 24%.
One of the important takeaways from this vote was that markets can be unpredictable and so investor portfolios should be prepared for all scenarios by being diversified. In our articles and videos, we have emphasized the importance of diversification in portfolios many times. Diversified portfolios, which include stocks, bonds, foreign assets and gold, always outperform the market on risk-adjusted basis over longer-term.
Investors however now question if these safe haven assets can rise further after these strong gains.
Markets hate uncertainty and we already had a lot of global macroeconomic and political uncertainty and Brexit has added a lot of it.
Uncertainly may continue to induce investors to invest more in safer assets including gold and Treasury bond ETFs. Lower for longer rates benefit bonds and gold but a stronger dollar could present some headwinds for gold.
Further, US Treasury bond yields look very attractive compared to those in other major countries. Due to negative/ultra-low rates in Europe and Japan, foreign demand for US Treasuries is now at all time high levels.
To learn more, please watch the short video below:
Video Length: 00:07:01
Disclosure: None.