Investors should move out of record cash positions and into gold – Brookville Capital
(Kitco News) - The COVID-19 Pandemic has created an unprecedented amount of fear in the marketplace as investors hold on to records amount of cash in their portfolios. However, one market analyst said that these investors should think of moving some of that cash into gold.
In a recent interview with Kitco News, Simon Popple, author of the Brookville Capital Intelligence Report, said that investors holding records amount of cash are unknowingly taking on foreign exchange risk. He added that in a world that is seeing soaring levels of sovereign debt, there is a growing risk of global currency debasement.
“Cash is not without risks,” he said. “Investors should hold some gold to mitigate a loss of their purchasing power.”
Popple ’s comments come as the Federal Reserve ’s balance sheet moves from one record high to another record high, currently standing at $7.4 trillion dollars. At the same time, President Joe Biden and Democrats controlling Congress continue to push forward a $1.9 trillion stimulus package to help Americans survive the COVID-19 Pandemic.
“All this debt out there poses a real risk to economic growth. There is a growing risk that we will see some form of stagflation, low growth with high inflation,” he said. “There ’s a good chance that a gold holding will appreciate in value against your currency.”
Looking at gold ’s performance in a variety of currencies, the yellow metal saw gains against all major currencies last year. Quoting data from May, Popple said that gold prices were up an average of 18.7% against the nine major world currencies, the highest gains since 2010. Since 2001 gold price has seen annual average gains of more than 10% against major global currencies.
As to how much gold investors should be holding, Popple said that he thinks 20% makes sense in the current market. He added that this is on top of the 5% to 10% investors should hold in their portfolio as a strategic asset.
“The more money we see printed, the higher gold prices should go,” he said.
Popple added that with so much uncertainty in the marketplace, coupled with record valuation, he is not surprised that investors are sitting on the sidelines with a pile of cash.
“Investing right now feels more like going and playing in a casino. With valuation where they are, it is difficult to know where the value is in the marketplace,” he said. “Right now, people should be protecting their wealth. In the current environment, that is more important than making money.”
Like governments and bond markets, Popple said that corporations are also running on debt as they take advantage of record lower interest rates. However. He added that at some point, all this debt would have to be paid back. He added that there is not enough potential growth in the marketplace to outweigh the debt, so the only way to deal with it is through inflation.
Although many market players have dismissed the looming inflation threat noting that quantitative easing in 2008 did not lead to rising price pressure; however, Popple noted that there is a significant difference between now and the last great financial crisis.
“More money is going directly to the many on the street, and that is what is going to drive inflation,” he said. “Government and corporations just can ’t continue to spend money they don ’t have. At some point, they are going have to pay the bill.”