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Steve Forbes: 'government stupidity' may bring new gold price highs, but gold still 'just a piece of metal'

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(Kitco News) - Regardless of how bad the economic fallout from COVID-19 and subsequent government response will be, one thing is clear: gold will retain its status as a hedge asset and is a must-own in every investor’s portfolio, according to Steve Forbes, chairman and editor-in-chief of Forbes Media.

In a podcast published on Forbes magazine last Friday, the media mogul outlined several economic scenarios, all pointing to tailwinds for the yellow metal.

“The trillions of dollars being spent to save our virus-battered economy are stoking fears of inflation,” he said. “Gold has always been a hedge against government’s economic blunders.”

Forbes added that government policies enacted now could lead to disaster that has the potential to send gold prices soaring, like in the 1970s.

He joins a host of analysts who have said that fundamentals are about to push gold prices much higher than current levels.

Bank of America was among the Wall Street analysts who have turned bullish on gold, recently calling for prices to target $3,000 in 18 months.

John Hathaway, senior portfolio manager of Sprott, recently wrote in a report that not only will gold prices climb higher on the back of unprecedented monetary and fiscal stimulus, but that gold mining stocks could outperform bullion.

However, not all analysts see the path of gold prices as a straight line to new highs. Florian Grummes of Midas Consulting said that a “major correction” could hit gold prices in the coming months, but expects this price reversal to be only temporary.

Comparing gold to stocks, Forbes outlined the metals’ superior performance during market downturns.

“If you'd put say $10,000 in the stock market a year ago, you have about $9,000 today. If you put that $10,000 in gold you have $13,500 today. That’s over $4,500. Since stocks reached their highs in February, gold has outperformed them by a good margin,” he said.

Investors should not, however, put all the eggs in the gold basket, so to speak, and should only allocate up to 10% of their portfolio in the bullion, he suggested.

“Yes, you should put some money into gold, but only a fraction of your portfolio, say 10%. Why? Because gold is not an investment; it's not like a buying into a company that makes a product or a service,” he said. “Gold is just a piece of metal but you have it as a hedge.”

He added that while risk assets like equities have been beaten down this year, the might of the American economy has always recovered from past recessions.

“It is true, U.S. stocks always come back from disasters without exception. Look at the early 1930s; Great Depression stocks have fallen almost 90%. Today, [stocks] are significantly higher, outperforming bonds outperforming gold or silver over the period of time,” he said.

Long-term, gold’s future will depend on who sits in the Oval Office come November, Forbes said.

“If we get a government next year that is committed to reducing taxes and removing burdens on businesses, especially small businesses, by golly stocks will really come roaring back. If not, then you'll be glad you bought some gold as a hedge,” he said.

“Bottom line is put some money into gold is a great hedge against stupidity by our governments, but good things are going to be done.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.