Many of the polemics surrounding gold involve a comparison with equities. If you are pro-gold, many believe you are anti-stocks, anti-innovation and anti-prosperity. However, we see gold as a non-yielding real asset that should act like a ‘safe-haven’ currency.
Gold, in our view, is no way comparable with a risk asset which has a claim on the future cash flows from commerce; neither should gold be grouped with commodities consumed to create economic activity.
Persistent use of loose monetary policy to tackle structural headwinds to global growth also means the money many assets are denominated in is increasingly risky. This is of key importance to the absolute return investor. In an environment of increasing paper currency devaluation, debasement and volatility, it can make sense to denominate a portion of one’s portfolio in a monetary asset outside the current credit driven financial system as a means of diversification. Nation states continue to hold gold as part of their reserves as long-term financial insurance – it doesn’t seem unreasonable to us for investors to do the same.
Iain Stewart – Newton, a BNY Mellon company