Experts: Gold is the Answer to Today’s Troubling Questions

Gold’s function as inflation hedge

Ross Beaty, chair emeritus of Pan American Silver (TSX:PAAS,NASDAQ:PAAS) and Equinox Gold (TSX:EQX,NYSEAMERICAN:EQX), used his presentation “Gold is Great” to highlight the yellow metal's many roles.

“Gold has always been an inflation hedge. (It) had a fabulous run when we had that incredible inflation in the late '70s, early '80s. And I think we're going to have another one,” he said.

In fact, during the period known as the Great Inflation (1965 to 1982), the gold price rose 1,476 percent from US$42.20 (January 1, 1970) to US$665.15 (September 1, 1980).

“It's going to be better as inflation becomes not just transitory, but actually long term,” Beaty said.

He went on to point out that gold also serves as a hedge against geopolitical turmoil. “It's always been a sort of crisis hedge. People buy gold when the world is a scary place. And that will continue.”

But why hasn’t gold done better?

With gold approaching the US$1,800 mark as of August 10, one question that has plagued the market for months is why the precious metal hasn't performed better given the many factors working in its favor.

Coyne touched on this, noting that the night before his presentation he had at least a dozen conversations regarding the metal’s recent performance.

“I remind people every time, you have to think about gold — and gold equities for that matter — in decades, not days,” he said. “We have to remember that it's still outperforming the S&P 500 (INDEXSP:.INX) by over 1,000 basis points. Bonds are continuing to sell off as rates continue to go up, and gold continues to show stability.”

Since January 2020, gold has risen more than 18 percent, rising from US$1,532 to US$1,800 as of August 10. It hasn't met Beaty's expectations, but he believes in its “intrinsic value," describing it as a "coiled spring."

“If you look at what gold's done recently, it's actually done pretty well," he said. "It hasn’t done as well as I thought; I thought it would blow through US$2,000 earlier this year, and it hasn't done that. In fact, it retreated a little bit.”

The precious metals sector veteran went on to note the correlation between the greenback and the yellow metal. “It's actually held up pretty well against the US dollar,” he said. “And normally it trades inversely to the dollar.”

Gold’s ability to store value

Brien Lundin, editor and publisher of Gold Newsletter, also spoke about gold, using his time to underscore its status as a store of value. “Something that we need to remind ourselves of is that gold is the constant around which all other values revolve, and against which currencies have always depreciated,” he told the room.

While increased money supply debases currencies, gold has both retained and grown its value for decades.

“This is why gold is your wealth insurance; it preserves your purchasing power, your portfolio and your wealth against not the possibility, but the inevitability, of the depreciation of new currency,” Lundin said.

He also cited the cup-and-handle technical chart pattern in which a formation resembling a teacup with a "U" shape and slight downward drift is considered a bullish sign ahead of long-term run up.

“In gold, as you've seen, probably numerous times … (there is) a multi-year cup and handle pattern. It projects to a US$3,000 gold price when that pattern gets resolved,” Lundin said. “Bottom line, despite the recent volatility, despite the declines that we've seen recently, a long-term, money-based gold bull market is in progress.”

Wrapping up his presentation, Beaty explained that the factors that will catalyze gold are all around. “If we go into recession, I think there's going to be more money printing, more money debasement. The government won't be increasing interest rates as much as they have predicted … that's always going to be good for gold.”

He added that inflation, which he expects to last much longer than forecast, is also a tailwind for gold.

This was also echoed by Coyne, who concluded his “Value of Gold and Gold Equities” presentation by saying, “The bottom line is that by adding some gold and gold-backed equites to your portfolio, not only does it dampen your overall volatility, but surprisingly, it increases your total return.”