Investment manager explains his complicated relationship with gold, highlighting its lack of generating profits and the difficulty in valuing it using traditional measures like price-earnings ratios. He points out that gold’s value lies in its scarcity and aesthetic appeal, as well as people’s belief in its worth. To determine the best time to invest in gold, he advises considering factors such as inflation, real interest rates, the dollar’s strength, and geopolitical tensions.
The investment manager explores gold’s reputation as an inflation hedge, noting that its price tends to increase during high inflation periods. However, he also mentions instances where gold prices declined despite high inflation rates, suggesting that its effectiveness as an inflation hedge is not definitive. He then discusses the concept of real interest rates and how they can impact gold’s performance, with higher real rates being detrimental to gold.
Regarding the dollar’s strength, the investment manager explains that a strong US dollar can lead to poor performance for gold, while a weak dollar often boosts gold prices. He predicts a weak dollar in the near future, citing potential factors like declining US interest rates and political instability that may reduce global demand for the dollar. Geopolitical tensions are also highlighted as a factor that influences gold prices, with instances of war or conflict generally leading to increased gold prices.
Looking at historical data, the investment manager compares the average annual returns of gold and stocks, noting that stocks have outperformed gold significantly in recent years. Despite this, he advises holding some gold in the current environment due to ongoing conflicts and the potential weakness of the dollar. He discloses his ownership of shares in SPDR Gold Shares ETF, which represents ownership of physical gold.
In conclusion, the investment manager presents a nuanced view of gold as an investment, acknowledging its limitations but also recognizing its value as a hedge against inflation and geopolitical uncertainty. He advises investors to consider multiple factors when deciding whether to invest in gold, such as inflation rates, real interest rates, the strength of the dollar, and geopolitical tensions. Ultimately, he suggests holding some gold in the current economic environment, given the ongoing conflicts and potential weakness of the dollar.
