Gold has been used as currency for at least 5,000 years. Throughout history it has maintained its purchasing power because it cannot be printed. Today investing in gold & silver provides a long term insurance policy. As a finite and limited resource gold has protected investors against currency inflation and market fluctuations.
Gold acts as an important diversification tool and safety net for investors as the gold price tends to inversely correlate with traditional risk assets.
Whilst high stock prices, a strong USD and signs of renewed economic growth have helped to suppress the gold price, these trends will not continue indefinitely.
Why invest in gold now?
Stunt & Co. advocate the purchase of physical, allocated gold held outside of the banking system.
The 2008 financial crisis showed us the systemic risks associated with large banks and whilst some of the worst excesses have been cleansed, especially in the USA, banks around the world continue to rely on government and central bank support.
Many of the same problems still exist. They are being masked by money printing that cannot go on forever. Worse still, given global indebtedness it is uncertain that governments and central banks have the resources to stave off the next crisis.
Gold protects against the value of currencies in terms of purchasing power. Currency values have fallen significantly and will continue to fall as the money supply continues to expand at record pace.
With interest rates below the level of inflation, holding cash means that you are losing money. Low interest rates are encouraging investors to invest in equities and property leading to boom in these markets. This will only continue while interest rates remain low. Given the above, we believe that interest normalisation is likely to have positive effect gold contrary to a popularly held belief.
Gold is valued in USD and as such the marked appreciation of USD vs the vast majority of major currencies has artificially supressed the price. This is not sustainable given USA’s current debt and unfunded liabilities. The inevitable USD currency debasement is likely to lead to higher gold prices.
The debts of governments and banks can never be repaid with normal money. Instead governments and central banks will need to create massive additional debt and print money at an accelerated rate. Alternatively they can look to allow inflation to reduce the debt burden. Either scenario is expected to lead to a much higher gold price.
The c. 30% drop in Gold prices has meant that less profitable mines have been abandoned and exploration curtailed, thus suppressing the supply.
Regardless of the outcome of these financial and market conditions, we believe that having a proportion of your assets held in bullion, outside of the banking system, in a politically stable country with a good rule of law makes sound financial sense.