What’s behind Gold’s Breakout?
The comments below are an edited and abridged synopsis of an article by Alasdair Macleod
Macleod addresses some myths about gold as an investment medium and the consequences of an accelerating money supply. In the article’s conclusion, he writes:
“Not only do global bond markets offer minimal or even negative returns, but there are growing signs the corporate sector is coming under pressure from a gathering recession. The strains in the fiat-money financial system are growing, with unsustainable corporate and consumer debt becoming an urgent consideration. This puts the investment management industry in a difficult, even impossible position.
The only investment opportunities that are now emerging, beyond increasing fiat cash balances, are unregulated. These are a dash into cash in the form of gold and speculation in cryptocurrencies. Unregulated investments are anathema to compliance officers and therefore investment managers. Even when wrapped up in ETFs, which are regulated, the investment management industry has been slow to accept them. For the purpose of the within article, we have put cryptocurrencies to one side. This is about physical gold.
Having invested intellectually in fiat money concepts at least since the demise of Bretton Woods, investment managers have reduced portfolio exposure to gold and related investments to probably as low as it can get. Now that its dollar price has broken out of a multi-year torpor, gold offers the prospect of enhancing portfolio returns, which is why it is catching the attention of the investment management industry.
For most investment managers, the process of unlearning the theory of state money will be a painful one. Tom Stevenson has written an article in the Daily Telegraph, which exposes a worrying degree of ignorance among so-called investment experts about monetary affairs in general, but particularly about the role of gold as money.
With governments everywhere itching to increase spending without raising taxes, and as the global economy sinks into a trade and credit-cycle induced recession, budget deficits will fuel monetary inflation at a faster pace than seen before. Re-learning that gold is sound money is now the most urgent priority for all those charged with responsibility for other peoples’ investments.”