Three Opinions on Gold

Today, fiat paper money is the common medium of exchange. It derives its value from being declared (fiat) as money by the government. However, that may be coming to an end because of Scarcity. Gold and silver cannot be printed. Paper and digital dollars can be created '“ex nihilo.” Co-Chief Investment Officer & Co-Chairman of Bridgewater Ray Dalio, Blackrock CIO Rick Rieder, and former Federal Reserve Chairman Alan Greenspan are all giving similar reasons to owning gold: inflation.

Ray Dalio manages the Bridgewater hedge fund, one of the largest in the world with $160 billion of assets under management (AUM). In a LinkedIn article, entitled Paradigm Shifts,[1] that he published on July 17, 2019, he writes,

“At the same time, central banks doing more of this printing and buying of assets will produce more negative real and nominal returns that will lead investors to increasingly prefer alternative forms of money (e.g., gold) or other storeholds of wealth. 

…

As a result, the world is leveraged long, holding assets that have low real and nominal expected returns that are also providing historically low returns relative to cash returns (because of the enormous amount of money that has been pumped into the hands of investors by central banks and because of other economic forces that are making companies flush with cash). I think these are unlikely to be good real returning investments and that those that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold. Additionally, for reasons I will explain in the near future, most investors are underweighted in such assets, meaning that if they just wanted to have a better balanced portfolio to reduce risk, they would have more of this sort of asset. For this reason, I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio.”

Blackrock is the largest asset manager in the world ($6.8 trillion AUM). Blackrock Chief Investment Officer of Global Fixed Income, Rick Rieder, wrote in the Blackrock blog an article entitled, The Monetary Policy Endgame.[2] As with Ray Dalio, he explains why gold is a good hedge against inflation,

“And, potentially more importantly, extremely low rates can and will encourage fiscal actors to add more, and potentially dramatically more, debt to an already historically-levered set of economies (e.g. the increased discussion of MMT). Hence, all of this leads one today to consider assets that can participate in an inherent devaluation of the local currency, which is to say: equities, real estate, and even hard assets that have historic value-relevance, such as gold.”

Finally, Alan Greenspan said on a Sept 4, 2019 interview with CNBC’s Squawk On the Street,[3]

“One of the reasons that the gold price is rising as fast as it is telling us essentially that people are [long] hard resources which they know are going to have a value 20 years from now, or 30 years from now as they age, and they want to make sure they have the resources to keep themselves in place. That is a clearly fundamental force that is driving this.”

With these three opinions in mind, are you well hedged?

[1] https://www.linkedin.com/pulse/paradigm-shifts-ray-dalio/

[2] https://www.blackrockblog.com/2019/09/05/monetary-policy-endgame/?utm_source=BlackRock+Blog&utm_campaign=64d5638776-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_7beec13d69-64d5638776-305445649

[3] https://schiffgold.com/key-gold-news/greenspan-rising-gold-price-shows-investors-want-hard-assets-will-increase-value/