Steer Your Business Dec 2020 - Magazine - Page 16
Is Gold Going
Mainstream?
Gold, as an asset class, has had many detractors, particularly amongst the institutional
community, but is that about to change?
Ohio’s $16 billion Police & Fire Pension Fund is following
in the steps of Warren Buffett (Berkshire Hathaway
recently took a stake in Barrick) and are making a big
statement about owning gold. It has approved a 5%
allocation to gold to help diversify the fund’s portfolio
and to “hedge against the risk of inflation” according to
Bloomberg.
The question being is this a blip or the start of a
major trend. Right now I think there’s more FOMU (Fear
of Messing up) rather than FOMO (Fear of Missing Out)
about investing in a new asset class….let’s see.
It also looks like negative yielding debt is going to
around for some time….
Let me touch on 3 of the reasons why you should be
thinking about Gold.
• Escalating global debt
With global debt going through the roof, the cost of
servicing this debt has followed suit. So much so that
to achieve this, interest rates need to be low or in many
cases negative. Otherwise the interest can’t be paid
and then we’ve got defaults. Take a look at this graph….
you don’t need to be a rocket scientist to see this trend.
This has made a lot of fixed income products very
unattractive to investors. Particularly institutions, who
are often looking for income. They simply can’t get the
yield they need.
Many have decided to “chase yield” which has taken
then into asset classes which are far riskier than they
want. High yield being a case in point.
Others have turned their attention to the equity
markets. But with so many companies either slashing or
stopping their dividends because of Covid-19, dividends
may not be the answer.
It’s also worth pointing out that the main reason for
not holding gold – “it does not yield anything” has now
gone out the window….because neither do many fixed
income instruments.
• Strong gold price performance
The next chart will surprise you. It certainly shocked
me. As you can see, over this 20 years period, gold has
outperformed Berkshire Hathaway.
16 STEER YOUR BUSINESS
