Euro crisis has expats seeing gold
By Nick Lewandowski - 11 November 2011
Investors’ opinion of the euro is bouncing between pessimistic and apocalyptic, depending on the newsflow at any given time. It’s pretty clear expats in euro countries should diversify out of euro holdings, particularly in Greece and Italy.
Unfortunately there are precious few good bets remaining. Stocks have been in general retreat since the spring and “haven” bond yields are hovering near record lows. This has investors the world over looking to gold as the investment to end all investments.
This dovetails with preliminary results from Just Landed and Lloyds’ Expat Banking Poll, which found 23% of expats would prefer investing in gold to land in a growing economy or a diversified portfolio. Granted, land remains the most popular choice (by a single point), but given events in the eurzone you have to wonder how many economies will be growing a few months from now.
After all, the growth forecast for EU economies was recently trimmed to a mere 0.5% for 2012, rising only to 1.5% the year after.
On top of that, safe bets for growth in emerging markets, like China and India, aren’t exactly the easiest places for a property investor to get his foot in the door. There are other risks associated with China in particular–not least of which are an over-leveraged public sector and weak domestic demand. Another recession in the West would deal a serious blow to Chinese growth.
And there is yet another issue expats need to consider when thinking about land. That’s the potential for inflation. If countries like Greece and Italy leave the eurozone, they will almost certainly print money to ease their debt burdens. This is a problem for expat investors in particular, who may be counting on income in a weak currency to prepare for the future in a stronger one. Inflation is also usually higher in emerging markets.
So we end up back at gold–the classic hedge against inflation.
There’s no doubt gold has earned a place in every expat’s portfolio (provided he can afford it!). But as always, we would caution any investor against putting all her eggs in one basket. In particular, we encourage expats to consider diversifying across currencies, a topic we’ll explore further in a future post.