Gold, the “anti-dollar”, will rise

Debased currencies and overheating bond markets have sparked renewed interest in gold – a tried and tested means of hoarding wealth.

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).

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.

Recommended

Why gold has been such a bad investment so far this year
Gold

Why gold has been such a bad investment so far this year

Gold – the ultimate safe haven investment – is proving anything but safe. It’s lost over $200 an ounce since its high at the start of the year. Domini…
3 Mar 2021
Gold will soon regain its lustre
Gold

Gold will soon regain its lustre

Despite roaring commodity prices and central bankers stoking inflation, gold is being left behind. But that won't last.
26 Feb 2021
Gold has had a tough start to 2021, but we’ve been here before
Gold

Gold has had a tough start to 2021, but we’ve been here before

Gold has had a disappointing start to the year – in an increasingly digital world, it’s the ultimate analogue asset. Nevertheless, says Dominic Frisby…
20 Jan 2021
Gold’s strong start to the new year
Gold

Gold’s strong start to the new year

Gold has raced off the starting blocks for 2021, hitting a two-month high on Monday.
7 Jan 2021

Most Popular

A beginner’s guide to bitcoin: how to buy bitcoin
Bitcoin

A beginner’s guide to bitcoin: how to buy bitcoin

For the novice, buying bitcoin can be a daunting prospect. Here, Dominic Frisby outlines the process from start to finish.
2 Mar 2021
A beginner’s guide to bitcoin: what is bitcoin?
Bitcoin

A beginner’s guide to bitcoin: what is bitcoin?

As a completely novel concept for many people, bitcoin can take a little effort to get to grips with. In the first of a short series on the cryptocurr…
1 Mar 2021
What is “yield curve control” and why is it coming to a central bank near you?
Government bonds

What is “yield curve control” and why is it coming to a central bank near you?

Central banks around the world are determined not to let interest rates go up too quickly or by too much – a practice known as “yield curve control”. …
1 Mar 2021