Gold Needs to "Glow Up"

Gold is a Mandatory Portfolio Asset

Now that gold has powered over $2,000, it’s an excellent time to take stock of what has been accomplished by the monetary metal and what may lie next. As for my Gen-Z “Glow Up” reference (and more below), conversations with my 16-year-old daughter are a constant reminder that I, too, like the gold market, need some updating and modernization.

Most importantly, in our view, it has been established as a baseline that a diversified asset portfolio must include an allocation to gold. We believe this statement is justified by the fact that gold is now the only monetary asset that is priced by a liquid-free market and not directly correlated and partially controlled by central bank (i.e., government) policies and market interventions.

Without once again judging the merits of the exceptional monetary debauchery and fiscal stimuli of 2020, and regardless of an investor’s views on credit and equity market valuations or prospects for inflation, there is no other liquid asset which accomplishes what gold does in the way of portfolio insurance and purchasing power protection.

High Key Currency

Gold’s superior track record as a currency has been demonstrated over 100-, 50-, 20-, 5- and 1-year timeframes. Almost 50 years since de-coupling with the U.S. dollar (USD) and throughout the advances of electronically transmittable fiat currencies, gold has relentlessly retained its luster. While there have been corrections during gold bear markets, most notably versus the USD as it became the chief global collateral asset, gold has savagely outperformed as a store of value, as shown in Figures 1–3.

Figure 1. Purchasing Power of Main Currencies in Gold

Over the past 20 years, these five major currencies — U.S. dollar, Euro, Yen, British Pound Sterling, Swiss Franc — have all lost purchasing power value when compared to gold bullion.

Figure 2. Gold in Various Currencies Indexed: 5 Years (2015–2020)

Over the past 5 years, gold has increased in value relative to these five major currencies — U.S. dollar, Euro, Yen, British Pound Sterling, Swiss Franc.

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Source: Peter Grosskopf | Sprott