Gold, the “anti-dollar”, will rise

published 2 August 2019

Gold bars and gold coin © iStockphotos — Gold: "risk-reducing and return-enhancing"

"We are living in a brave new world," says Irwin Stelzer in The Sunday Times. Democrats and Republicans have managed to put aside their political differences in order to raise the ceiling on America's national debt by $320bn. It seems that platitudes about future generations and fiscal probity are a lower priority than re-election battles in 2020.

The US federal budget deficit now looks set to top $1trn for the second year in a row, reports Kate Davidson in The Wall Street Journal. Yet low Treasury yields suggest that markets are "unfazed by all the red ink".

That is due to ultra-easy central bank money. The US Federal Reserve has made it clear it will prop up markets with cheaper money, while the European Central Bank is being urged to buy stocks with printed money (see column).

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Yet a "return to fiscal and monetary stimulus" is unnecessary at a time when asset prices are at record highs and unemployment at "multi-decade lows", say Danny Yong and Nikhil Srinivasan, also in The Wall Street Journal. US president Richard Nixon's abandonment of the gold standard in 1971 means that global central banks have only their own restraint to separate them from the printing presses. The Fed's decision to buckle in the face of political pressure undermines faith in the world's fiat-currency system. In the long term there is the risk that all this profligacy sees investors "lose confidence in the US dollar as a store of wealth".

Hoard your wealth

And with $13trn of government bonds carrying negative interest rates worldwide, the old argument that gold doesn't pay you an income is less compelling than it used to be.

Hedge-fund manager Ray Dalio said last month that gold is likely to prove "both risk-reducing and return-enhancing". Gold does best at times when "the value of money is being depreciated and domestic and international conflicts are significant".

Hold 5%-10% of your portfolio in gold. You can track the price with the ETFS Physical Gold (LSE: PHAU) exchange-traded fund.

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.