Gold has rallied 50% in the last year and at a CAGR of 29% in the last 3 years.
Many clients asked if it is still a good time to buy Gold. And my answer is a strong Yes.
In my opinion, Gold is a mega investment theme for the next decade.
Before I share my reasons for the same, I’d like to tell a little backstory.
We started allocating to Gold funds in all our clients’ portfolios from 2018/19 to the tune of 15-20% of the portfolio on the back of expected hyperinflation due to unabated money printing by Central banks led by the USA Fed.
It was followed by the COVID-19 shock during which the US printed 20% of the Dollars ever printed in a single year. Excessive printing of money devalues the currency due to inflation. Gold becomes a natural alternative to preserve wealth due to its long history of being an underlying asset for paper money.
After the abolishment of the Bretton Woods treaty in 1971, the US printed money without any correlation with underlying gold. It was accepted by the world at that time because there was no challenger to the US by far. Now, there is China.
The US economy maintained fiscal discipline over the next few decades, which established trust in the US dollar as a reserve currency. That trust was broken when the US printed massively during the subprime crisis and continued to do so even without any crisis.
In the process, the US and other developed economies have accumulated so much debt that it has become unsustainable. That’s why ending wars that the US no longer can fund, reducing their defence spending in other countries, applying tariffs, and issuing stablecoins are all signs of desperation to manage debt, or at least delay losing global reserve currency status.
Unfortunately for the US, the ball has started rolling faster after the US confiscated Russia’s dollar reserves. This was a strong signal to other countries to diversify away from the USD, or else it can be used against them. That’s why the other Central banks are buying Gold in huge quantities and will continue to do so.
Gold will therefore continue to rise due to:
1. De-dollarization leading to a multi-polar world where the US is at one end and China on the other.
2. Heightened uncertainty in changing macro-economic equations, where winners and losers will appear much later.
3. War tensions and possible direct clashes of big nations, as no one likes losing power.
4. Sustained level of inflation, as not printing money is no longer an option, as it will cause immediate pain.
All the above factors benefit Gold and will play out over a decade.
It’s not that Gold will never correct. A correction of 5-10% is very normal in any asset class.
Our clients benefit from Gold allocation in their portfolio, which contributed to double-digit portfolio returns compared to 0% returns of the Sensex in the last year. Make Gold at least 10-15% of your overall financial assets to hedge against uncertainties and preserve wealth.
Originally posted on LinkedIn: www.linkedin.com/sumitduseja
