Precious Metals

Gold Investing

The latest “In Gold We Trust” report urges investors to put their faith in gold in order to survive economic turmoil.

Investors who are concerned with gold’s current performance are being prompted by fund managers Ronald-Peter Stoeferle and Mark Valekto to focus on the yellow metal’s safe haven nature as a source of trust in a market that continues to crumble.

In the 13th annual “In Gold We Trust” report, Stoeferle and Valek, fund managers at Incrementum, explain why the precious metal remains the last hope for security in an increasingly fragile world.

“Whether in EU or US, it seems that the price of gold is slowly sneaking up, secretly and far from any media or investor attention,” Valek notes in the report.

One of the ways that gold has stepped up to show its trustworthiness is by proving that it is an excellent portfolio diversifier. Only seven of 121 industry sectors in the S&P 500 (INDEXSP:.INX) were in the green by the end of 2018; notably, gold rose 8.1 percent with mining stocks as a whole gaining 13.7 percent.

Gold was also able to outperform all important domestic stock markets last year, with prices showing relative strength in the US and Japan, even though the yellow metal declined marginally in US dollars and yen. The report states that gold investors in Germany received gains of 3 percent, while the DAX (INDEXDB:DAX) fell 20 percent.

“This comparison confirms our thesis that gold (and mining stocks) are excellent portfolio stabilizers. This insight is all the more important because trust in the US as the global economic steam engine is on the decline,” notes Valek in the document.

The report continues on to reveal that a lack of trust surrounding the US-dollar-centric structure is currently at play. As economic and political issues continue to manifest within the powerful North American country, central banks around the globe have increased their gold reserves, with Russia, Kazakhstan and India leading this uptick. The first quarter of 2019 had banks purchasing an extra 145 tonnes of gold, which is the highest increase since 2013.

Furthermore, the report points to economic and corporate debt within the US, explaining that the entire US economy is built on debt, which is in no way sustainable. According to the report, next year, “US government debt will exceed the combined debt of Japan and the eurozone, despite the fact that absolute US and Japanese debt were at similar levels until 2011, rising almost in step.”

The authors of “In Gold We Trust” believe that there is an overconfidence in the US economy and the US dollar, which will ultimately hit investors with negative consequences. They point out that the greenback has already begun its downward trajectory as it only gained 4.3 percent last year, which they believe sets the dollar up for a bear market.

Stoeferle and Valek state that, while there have been times when people have lost trust in paper currencies, this would almost never happen to the precious metal. They encourage investors to look at it as safe haven that can be continually trusted in, even when prices go through periods of decline.

They see a US recession as inevitable, and believe that, when that happens, gold will shine.

Overall, despite the current lack of investor interest in the gold space, the fund managers believe that with all the factors at play, the yellow metal is actually in the early stages of a bull market — “a bull market that could soon pick up momentum on a US dollar basis.”

As of 12:48 p.m. EDT on Wednesday (May 29), gold was trading at US$1,281.50 per ounce.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.



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