And not just gold - other hard assets too. Assets that are difficult to substitute and supply constrained relative to fiat currency.
Here are Felix Zulauf's1 (market strategist and asset manager since the 1970s) entire comments on gold during an interview conducted by Ed D'Agostino for Mauldin Economic's Global Macro Update2, posted December 8, 2023:
"I'm constructive on gold, but I think the recent rise was for the wrong reasons, it was geopolitics, and actually gold rose together with real interest rates, which has virtually never happened before, and probably means that gold is very short and not sustainable, needs a rest. Eventually it will go higher. I don’t see a lot of downside and it will go higher. I think next year we will see $2,500 or so…"
At this point D'Agostino asks: "and do you look at gold really as a currency hedge, more than anything else, or do you look at it as an inflation hedge?"
"…I think in the longer term, particularly in the second half of the twenties, what I described about rising interest rates, rising inflation, rising interest rates - and then a crisis, and in that crisis I think our governments will underwrite the economies. Unlike in the 1930s when they had a stable, gold-anchored currency, and they let the economy down, I think next time they will underwrite the economy and let the currencies go down, and then gold takes off in a big way."
We're less interested in the specifics of what the price of gold might be at a future point in time - we will leave the market timing to others. We simply want to protect our purchasing power. We recognize we are getting closer to a time when major governments will need to make extremely tough decisions…and when that time comes the path of least resistance will be to save economies…and when that happens fiat currencies will suffer. Not relative to each other - relative to assets that are difficult to substitute and supply constrained. Like gold.
And we haven't even mentioned the deterioration in trust and escalation of conflict inside the U.S., plus growing conflict and geopolitical tension outside the U.S…and gold's historical role as a haven in times of conflict.
Would we rather own a high-quality business with a long runway of high return opportunities to deploy its large and growing free cash flow? Yes, most of the time. But today, for all the reasons above, we find gold to be interesting too.
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