This year, Physical Gold has outperformed many global equity ETFs including my favourites SWDA and XDEQ. The gold ETF SGLN has shown a gain of 27.5% in one year. Over last 1, 3, 5 and 10 years it has kept pace with all world ETFs. Unlike bonds, gold can also dive when the market dives however.
This Q4 is expected to be volatile and the recent correction has scared some people but the market has now recovered. Investors are scared that a bigger correction may be coming before the end of 2024 and 2025 is also looking unsettled. 2025 is predicted to not be as good as the past two years have been. So some people are now turning to gold as a safer haven for their cash.
The graph below compares my favourite Physical Gold ETF (SGLN) to some other popular ETFs. Volatile Tech ETFs like tech ETFs XLKQ (40% gain this last year) or IITU have outperformed gold. China has a lot of secret gold (reputedly far more than they have declared) and if they need/want to sell some, they could devalue the dollar which would affect USA share prices. This would cause gold to increase in price as countries would want to increase their gold holdings to stabilise their own currency. Russia also hold a lot of gold and may need to sell some to support their Ukraine war.
A safer haven for your cash is to buy a money market ETF like CSH2. This currently pays just over 5% annual interest, but this inter-bank rate may fall by 0.5% soon due to lower interest rates. So when interest rates fall, as widely expected in September, gold may well become more popular.
Trading 212 will pay 5.2% on any cash held with them, but they will probably cut this rate soon too.
I still think that the Tech and service companies which have invested heavily in AI this year will show good performance next year. If Apple can make AI work properly on their devices (without hallucinations and misinformation) then they could also do very well next year.
AI will bring down the cost of any business that uses large call centres. As interest rates fall, people will have more money to spend and this encourages media advertising, so communications ETFs like IUCM may see an even greater gain soon.
It may also be worth keeping an eye on the performance of value companies (e.g. XDEV ETF) next year too, though at the moment this ETF does not seem to be gaining traction.
Currently, I favour a mix of USA tech ETFs (XLKQ), World quality stocks (XDEQ ETF) as core holding at least 50%, 10% gold (SGLN ETF) and will look to sell some stocks and keep 10%-20% as cash (CSH2 ETF) towards the end of the year if the market starts to trend downwards or becomes volatile again. I also hold some IUCM communications stocks which have gained almost 40% in a year.
Despite the massive USA gov. investment in silicon/tech companies, I don't see this paying off for several years, so although 2025 may be a slow year, 2026 should be another bull year (but what do I know!).
I tend to switch around the ETFs only within my (tax free) ISAs and SIPP accounts to avoid Capital Gains Tax charges. For CGT reasons, I tend to not trade too much within my General Investment accounts (GIA) as each profitable sell creates a taxable event and I will have to pay the tax man some more £££s next year if I crystallise more than 3k of gains in 2024-2025!
Catching a falling knife!
Volatility can be your friend. One thing I do is to catch the 'falling knife'. For instance, the correction which started around 18th July was mainly due to market sentiment rather than bad or unexpected company or country performance figures. So I sold a chunk of Tech ETFs on the 18th of July and watched their price plummet further as expected. However, rather than wait for the 'bottom', because the price had gone down over 3%, I used the cash to buy in again on the 25th of July because it looked like the market had started to recover and at least I had saved myself a loss of 3% - see IITU graph below:
As it turned out, I could/should have waited until 7th August but I could not take the risk, so on the 6th of August I bought more using some cash from my reserve cash CSH2 ETF. This meant I lost 2.8% less than if I had just not sold and held on, and also made 8% on the cash I used to buy more.
This is a risky operation, so I only do this when I can see no solid reason for a medium/long term market dip (and interest rates are certain to go down in September which should boost stock prices). Of course, I could always be wrong in which case I would have to buy in at a higher price and I would have been better off just holding on to my stocks. To avoid CGT, I only do this 'catch a falling knife' operation within my ISA tax free accounts.
The stocks I hold in my GIA tend to be either:
a) More 'risky' single company stocks (because any losses can be subtracted from any gains) - I tend to sell them if they lose 20% or more. I do not invest in AIM stocks (at least not any more) as they could go to zero!
b) Stable ETFs that I would hold forever (I sell a portion every year to xfer to my ISA), such as XDEQ and SWDA, etc.
Before April each year, I sell 20K of stocks from my GIA to move into my ISA and I try to reduce any CGT charges by selling off stocks which I have made a loss on and I don't think will recover in the next year.
I am not a financial advisor, These are just my own random thoughts. Please do your own research!
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