MONEY & INVESTING
Gold might be ‘the currency of first resort’
Gold is back in the financial headlines. Gold closed on March 23 at $1,438 an ounce, an all-time high. Certainly looks as if the gold bull is beginning a new charge.
In 2010, gold advanced 36 percent, from $1,096 an ounce to $1,421 an ounce, handily above the S&P total return of 15 percent for 2010.
Since Jan. 1, 2000, gold is up 396 percent and the S&P is down 15 percent.
True, there was some price retracement in the yellow metal in January and February this year. But along came: food riots in the eastern world, Middle East tensions, outright wars and a nuclear disaster in Japan. In times of geo-political uncertainty, gold has historically been a safe haven.
Fanning the gold flame was news that the U.S. recovery, anemic to date, might be losing some footing. If such is the case, investors feared more monetary easing. Gold has traditionally been viewed as an asset class that keeps abreast with inflation.
Gold from 2001 to present
SOURCE: TRADE STATION Investors naturally ask, “Is it too late to buy the yellow metal?” Not according to some of the world’s greatest investors.
Famed international and billionaire investors such as George Soros, Jim Rogers and Jim Paulsen are bullish on commodities,c especially gold. Mr. Rogers e me$ recently said to virtually all the news media that gold will go to $2,000 by the end of the decade, and silver will surpass $50 an ounce.
As co-billionaire investors seem to hang together,to some of the aforementioned invest with other billionaires whose specialization is gold. Enter HindeCapital and the Tigris Group. These international asset managers live and breathe gold (and obviously have a Midas bias/perspective); they offer clearly articulated, bullish positions on gold.
Hinde Capital, an expert in international economics and monetary policy, now calls gold “the currency of first resort.”
Hinde Capital’s CEO, Ben Davies, says: “The fact is that gold will outperform the equity markets around the world many times.” (January 2011 “HindeSight,” www.hindecapital.com)
The “why” from their perspective is: “The recent interventions in currency markets by leading G7 central banks… has produced yet more unsterilized amounts of currency to chase an unchanged supply of assets. More money chasing less assets equals only one thing: higher nominal prices.” In layman’s terms, they see inflation around the bend.
Worse possibilities? Yes, hyperinflation might be around the other bend in the road. The report goes on to say: U.S. “debt issuance is rising at a greater rate than demand. The Fed (recently) bought over 45 percent of all Treasury offerings, up 10 percent from December (2010). This dynamic will only ratchet up… (And) continued monetization is going to lead to, dare we say it, hyper-inflated prices. Participants could misconstrue this nominal rise in all facets of the economy as a signal of economic recovery. It will not be.”
Billionaire Thomas Kaplan, chairman of the Tigris Group, an investment firm with acknowledged expertise in natural resources, said, “If the world does well, gold will be fine. If the world doesn’t do well, gold will also do fine… but a lot of other things could collapse.” ( Wall Street Journal, May 22, 2010, “A Billionaire Goes All-In on Gold”)
Mr. Kaplan recently wrote a piece for The Financial Times, “Brace for the ‘Perfect Storm’ in Gold” (Jan. 18, 2011) laying forth his multi-pronged position on gold.
“The metal (gold) represents a mere 0.6 percent of total global financial assets (stocks, bonds and cash).” This is near 2001’s all-time low; the peak percentage was 4.8 percent in 1968.
What if the current low percentage increased?
“According to International Strategy and Investment Group, if gold ownership rose from 0.6 percent of total financial assets to only 1.2 percent, still less than half its 1980s level, this would equate to an additional 26,000 tonnes, or 16 per ent of aggregate gold worldwide. This represents 10 years worth of current production.” That would be a HUGE shift in the demand curve for gold.
Will gold resume a significant position in the world’s investment mix? Mr. Kaplan thinks so: “Some asset managers and central bankers are readmitting gold back into the group of prudent asset classes.”
Unlike stocks and bonds, where there is no limit to what can be issued/created to meet demand, and unlike fiat currencies, where there is no limit to how much currency can be printed, there is zero ability to create more gold.
Hopefully, these quotes and references will make a visceral connection and stir you to make a critical reevaluation of the asset mix in your investment portfolios, including the best vehicle for owning gold.
There is a substantial risk of loss in trading commodity futures, options and off-exchange foreign currency products. Past performance is not indicative of future results. ¦
— Jeannette Rohn Showalter is a Certified Financial Analyst.