The equity market has been having a bad run over the past few months and returns from fixed income products are nothing to write home about. On the other hand, with the current global and domestic economic uncertainties, gold prices are set to inch higher. After all, gold prices thrive during such times as investors use the yellow metal as their safest hedge. Billionaire investors are still investing in gold for various reasons.
1-Wealth Preservation & Store of Value:
Today, it is very hard to predict the consequences of low interest rates as well as the high rate of global government debt at negative yields. That’s why central bankers are following the “greatest experiment in monetary policy in the history of the world,” and the investors are continuously preserving wealth by increasingly investing in gold.
Lord Jacob Rothschild, a British investment banker and a member of the prominent Rothschild banking family, strongly believes in this precious metal as an eternal value. In 1895, J.P Morgan partnered with Rothschild to lend the U.S. 3.5 million ounces of gold in exchange for 30-year notes after the Treasury’s gold holdings hit the minimum required level.In 2016, RIT expanded investments in gold up to 8% of total assets. The company’s profits went up, amounting to £64 million within half a year. Baron Rothschild makes no secret of the fact that he originally drew his attention to gold.
2- Potential Future Upside and Fundamentals:
Gold has always been considered one of the biggest monetary investments ever made by providing a solid financial position, allowing investors to lead desired lifestyles, help others and demonstrate talents.
Stanley Druckenmillerwas the portfolio manager of George Soros Quantum fund and was considered one of the most successful investors of all time, since he achieved an annualized rate of return of 30% for a 25-year period. His fund has acquired over 3 million shares of the GLD stock investment fund, which are funds 100% backed by gold. Gold also represents over 20% of Druckenmiller’s total assets.
3- Portfolio Diversification & Inflation Hedge:
A well-diversified portfolio is a portfolio that contains between 5-10% gold. Inflation, currency devaluation, stock market fluctuation, and too much debt leads to printing more money to put into circulation. This should advise you that some portion of your investment portfolio should be in gold.
Ray Dalio is the founder od the world’s largest hedge fund, Bridgewater Associates, and is the 30thrichest man in America with a net worth of $16.8 billion. Dalio turns to gold for diversification and as a hedge against inflation. Because gold typically performs well when there is high inflation and/or declining economic growth, diversifying with gold reduces the overall risk in a portfolio and protects it during times when stocks and bonds may take a hit. Gold is particularly well-suited for diversification and hedging, since it tends to move independently of paper assets.