5 minute read

Hot on the heels of the US Federal Reserve’s bold interest rate cut, China's central bank unveiled its own set of easing measures – the country’s biggest stimulus package since the pandemic. Markets reacted positively: the yuan strengthened to a 16-month high and its stock market saw its biggest rally in four years.

The People's Bank of China will lower banks' reserve requirement ratio by 50 basis points, releasing approximately 1 trillion yuan for new lending. The central bank also plans to support its stock market with two new financing programmes worth 800 billion yuan in total.

Coupled with reductions in key interest rates, these measures aim to bolster confidence, boost growth, and prop up the country’s struggling property market. Chinese banks will now have more room to extend loans, injecting cash into the financial system and spurring consumption.

💡Investors’ Corner: All that glitters isn’t just gold

Gold is a great asset to have in your portfolio – it’s a tool for diversification, provides a hedge against inflation, and can protect against volatility. But it’s not the only precious metal out there.

Lustrous in their own ways

When interest rates fall, gold becomes more appealing. Unlike cash or bonds, gold doesn't pay interest – but when rates are low, you're not missing out on much by holding it. And if the US dollar weakens with falling rates, that can also increase demand and push up gold’s price.

That effect on gold extends partly to silver. The prices of the two commodities generally move together; both are seen as safe-haven assets and are influenced by similar market factors.

The difference between the two is that silver has more uses: 46% of silver’s yearly consumption comes from industrial usage, versus just 6% for gold. Silver plays a pivotal role in many fast-growing segments – think solar panels, touch screens, and even water purification.

Uranium has a long-term growth narrative fueled by increasing electricity needs and growing trends like AI and EVs. Like gold and silver, it’s also a tool for diversification, since it tends to move somewhat independently from stocks and bonds.

This commodity has been on a hot streak and the reason comes down to supply and demand: there’s less of it around, but consumption is growing. Electricity demand is set to surge with increasing needs from emerging countries and AI. A ChatGPT search, for example, takes about ten times as much power as a Google search.

What’s the takeaway here?

With falling interest rates, it becomes increasingly important to invest beyond cash for higher returns, and to protect against inflation. These precious metals are just one of the many ways that you can continue to put your cash to work.

If you’re looking to invest in these commodities, our Flexible Portfolios let you do just that, allowing you to control your exposure to gold, silver, and uranium ETFs.

🎓 Simply Finance: Commodities

Commodities are raw materials that can be bought and sold, such as gold, silver, oil, or even coffee beans, each with their own supply and demand dynamics. Unlike stocks or bonds, commodities are physical assets with intrinsic value – often used as a hedge against inflation and a portfolio diversifier. Investors typically gain exposure through futures contracts, commodity-linked companies, or ETFs that track them.

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* The projected rate is not guaranteed and is as of 31 July 2024. It is based on the Gross Yield provided by the fund manager.

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