Why all investors need to own gold – and bitcoin

Inflation, war, currency debasement – the world is changing fast and investors need to adapt. That means owning both gold and bitcoin, says Dominic Frisby.

I was lucky enough to find myself on GB News at the weekend, standing in for the veteran broadcaster Alastair Stewart, who was taking some no doubt well-deserved time off.

No prizes for guessing what subject was the main focus of the two two-hour programmes.

The world has changed, and investors need to take that into account

There were all sorts of guests – Russian, Ukrainian, Polish – who all knew their onions, and added so many profound insights into the conflict. 

I sat there trying to ask sensible questions while absorbing as much information as I possibly could. I can’t pretend to be informed on this subject, despite being a lot more so now than I was a week ago – like most of us, I guess.

We covered so many subjects. The incredible bravery of the Ukrainian people and the resilience they have shown in the face of much better-armed opponents; the apparent strategic mistakes made by Russian forces so far, and the poor communication; the ruthlessness of Putin, the need to win and the risk that he doubles down. 

We also covered sanctions, Swift and the weaponisation of money; the war on the oligarchs and the kleptocrats; the imminent refugee crisis; propaganda; the tacit alliance between Russia and China – and that China will be watching all of this and learning; the ramifications for Taiwan; the dependency of so many nations on Ukraine and Russia for food supplies. And much more besides.

I watched, listened and tried to learn. 

I left the studio with a distinct feeling of dread that this invasion may prove to be the beginning of something much bigger. Russian commentator Konstantin Kisin, who hosts the popular podcast Triggerpod, kept repeating the point that in terms of historic significance this invasion is “bigger than 9-11”. The geopolitical landscape has changed, he said, and the West is at war.

On both days, I left the studio feeling glad that I owned gold. It has been a source of immense disappointment and frustration to me, as regular readers will know, but there is a time to own gold and now would appear to be one of those times.

I have reported more times than I care to remember on the vast amounts both Russia and China have accumulated over the last 20 years. 

Meanwhile, the way that the West has weaponised its money and banking against Russia is extraordinary – unprecedented even, and made possible by digital banking and modern technology. 

China is surely looking at this weaponisation, looking at Taiwan, and thinking that to protect itself, it needs to de-dollarise as quickly and discreetly as possible. Indeed, we know China has already been doing that.

With so much money frozen abroad, one of the few ways in which Russia can actually fund itself is by selling its gold, probably via Dubai, so that may mean selling pressure. Even so, I think gold rises from here.

Hold gold, bitcoin and gold miners in the Americas

Inflation comes with war; money gets debased, no matter which side you are on. If there is some kind of China-Russia, anti-West alliance, then just as we have retaliated against Russia through Swift and the banking system, that alliance will do the same in reverse. Ergo, it will wage war on the dollar. 

Western money is vulnerable. Fiat money has been printed into oblivion, while interest rates have been suppressed. Official inflation is already at 7%, while actual inflation is arguably much higher. Yet the system probably can’t take interest rates much above two or three percent. There is too much debt.

When the price of raw materials – commodities and natural resources – goes up even more because a key supplier, Russia, has been cut off, the pain of inflation is going to get worse. 

Governments may well attempt to impose price controls, but history shows that any relief that comes from price controls is only temporary. For the most part they don’t work and often just lead to shortages.

I’ve said for many years all China has to do is declare what its gold holdings really are – and you can see last year’s estimates here (I will do an update on this soon) – and that will be tantamount to a declaration of war. My theory, remember, is that China’s gold holdings are as big, if not bigger than those of the US.

I know I have long moaned about gold. It’s the most analogue asset there is in a world where all the value is digital. But I have also said many times that I continue to own it. It may be analogue but it has also been money since forever. It’s the first metal we ever used. 

We used it long before the Bronze Age, when we discovered smelting. Its purpose was the same as it is now – as reward, as display, as store of value, as tool of trade (in this case barter). In other words, as money.

But I have moaned about it because it has been such a perennial disappointment for so long.

The currency wars are hotting up. Attacks on national currencies are going to become the norm; the rouble has been bombed already. Don’t think that at some stage the dollar, euro and the pound are not going to come under attack, because they will. Other fiat currencies will get caught in the crossfire. 

Gold and bitcoin are the places to hide. 

On the subject of bitcoin, I see this conflict as an opportunity for it to decouple itself from the Nasdaq. If Swift is out of bounds, and governments in conflict have their tentacles running through the banking system, the use case for bitcoin suddenly got more compelling. What better way to transfer value across borders? 

You want to own both. And all those gold miners located far away from all of this in the Americas. There’s going to be a lot more demand for their product.

Dominic’s film, Adam Smith: Father of the Fringe, about the unlikely influence of the father of economics on the greatest arts festival in the world is now available to watch on YouTube.

Recommended

Is it time to pick up growth stock bargains yet?
Investment strategy

Is it time to pick up growth stock bargains yet?

If you’re thinking of picking up some bargains from the tech stock crash, beware – there are still plenty of “growth traps” out there. John Stepek exp…
26 May 2022
A fund that should give good returns from investing in good deeds
Share tips

A fund that should give good returns from investing in good deeds

Schroders BSC Social Impact Trust has made a solid start and looks more attractive than it did at launch, says Max King.
26 May 2022
Wall Street’s sell-off has further to go
US stockmarkets

Wall Street’s sell-off has further to go

The current stockmarket sell-off has been led by tech stocks, but the pain is spreading. The bear market has further to go – US stocks are still expen…
25 May 2022
Law Debenture investment trust update: premium over net assets slips
Investment trusts

Law Debenture investment trust update: premium over net assets slips

Saloni Sardana looks at the latest update from the Law Debenture investment trust, one of the six funds in MoneyWeek’s model investment trust portfoli…
25 May 2022

Most Popular

The world’s hottest housing markets are faltering – is the UK next?
House prices

The world’s hottest housing markets are faltering – is the UK next?

As interest rates rise, house prices in the world’s most overpriced markets are starting to fall. The UK’s turn will come, says John Stepek. But will …
23 May 2022
Everything is collapsing at once – here’s what to do about it
Investment strategy

Everything is collapsing at once – here’s what to do about it

Equity and bond markets are crashing, while inflation destroys the value of cash. Merryn Somerset Webb looks at where investors can turn to protect th…
23 May 2022
Three high-yielding FTSE 250 dividend stocks I’d invest in right now
Share tips

Three high-yielding FTSE 250 dividend stocks I’d invest in right now

The average FTSE 250 dividend yield is around 2.4%, but many stocks yield much more. Rupert Hargreaves picks the best FTSE 250 stocks for income inves…
23 May 2022