A flight to bullion and fields of gold

A flight to bullion and fields of gold

The Federal Reserve strode in with a massive 0.75 per cent cut in interest rates, steadying the markets by Tuesday, albeit at well under half where they were as recently as last July. But the gyrations in individual stocks continued.

One of the worst hit was HBOS: on the face of it, one of the safest high-street banks given its commanding position in the mortgage market and lack of exposure to the riskier areas of investment banking. But fears about its financial position sent its shares plummeting last week, down almost 60 per cent from last year's peak. While regulators attribute the fall to unscrupulous traders peddling rumours about liquidity problems - problems vehemently denied by the bank - and are trying to track down the perpetrators, it is a sign of nervousness that even these reassurances failed to spark much of a recovery in HBOS shares.

Geoff Tresman, chairman of Punter Southall Financial Management, says many clients fear that the markets are worse now than in 2000, even though the falls this time are nowhere near as severe. But how much worse can it get? A US recession is a near certainty and there is increasing talk of a 1930s-style depression. The theory of 'decoupling', which held that China and the other emerging economies would keep global.....continued below

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Small wonder, then, that retail investors are wondering whether or not to bail out now. Philippa Gee, at Torquil Clark, says: 'I understand why people should be thinking like that; but selling at such a low point, if you do not need the money in the next few days, is not sensible.'

Research by Fidelity highlights the pitfalls of panic selling: even the most experienced of fund managers cannot hope to get entry and exit timing absolutely correct, and missing the good days by not being invested in the market can be worse for your wealth than enduring the bad. Anyone staying invested for the last 15 years would have achieved a 264 per cent return, but if they had missed the 10 best days, that would have fallen to just 140 per cent; miss the 40 best days and the return would have been just 0.52 per cent.

Guessing when these good days will fall is impossible: Fidelity's research shows that three of the best 40 days in the market have been this year, when the general trend has been sharply down.

Others point out that over the long-term equities are generally a good bet. Barclays' Equity-Gilt study of investment returns shows that equities have beaten cash and gilts in three-quarters of the consecutive five-year periods since 1899. The study also shows that, when shares lag, they can do so for a long period: those who invested in 1972 would not have been back in the black, after adjusting for inflation, until the mid-1980s. Of course, markets may quickly settle - and Max King, investment strategist at Investec, is convinced that last Monday represented the bottom of the market - but it is sensible to wait until the direction is clearer.