In what may first appear to be a counterintuitive notion, the record-breaking performances of U.S. equities markets serve as an excellent reminder to astute investors that select alternative asset classes, like gold and silver, can serve important tactical and strategic purposes in the pursuit of both wealth preservation and capital appreciation.
What makes that notion counterintuitive is that as equities continue to climb, the idea that all-equity portfolios are best tends to be naturally reinforced. However, to those with some historical perspective and a solid awareness of the drivers that have helped take markets to these levels, including some of the world’s most renowned professional investors, the lofty heights achieved underscore the point that portfolios absent the right alternative assets can be at significant risk.
These asset managers recognize that the application of strategies limiting portfolio downside, to include the addition of precious metals, is making money. So regardless of whether you are investing in gold and silver in an effort to achieve explicit alpha, or to gain by limiting the potential for loss of portfolio value, the inclusion of precious metals can ably assist you along the path of increasing your net worth and realizing your long-term investment objectives.
For his part, Lord Jacob Rothschild of RIT Capital Partners investment trust has referred to what fiat currency overlords have been doing for years now as “the greatest experiment in monetary policy in the history of the world,” and thus sees great investment utility in gold, presently. Pointing to the unbridled use of stimulus programs by central banks around the world, Rothschild declares “the preservation of capital in real terms” to be “as important an objective as any” when it comes to portfolio management. To that end, he increased RIT’s position in gold and gold mining stocks to as much as 8% last year, and maintains a position in the metal today.
Referring to the conflation of problems he sees as threatening global economic stability, Rothschild says, “In these circumstances, our positioning is likely to remain defensive, with an emphasis on returns uncorrelated to the overall performance of equity markets.”
“Uncorrelated,” of course, largely describes the historical relationship between precious metals and equities, and is a key characteristic of those assets relied upon to provide genuine diversification.
Hedge fund manager David Einhorn of Greenlight Capital remains concerned the pro-growth environment President Trump is pursuing will ultimately result in a pronounced inflationary climate. More broadly, Einhorn sees Trump as somewhat unpredictable on the matter of policy, and economic uncertainty is often a high-quality fuel for precious metals price action. Accordingly, he declared a few months ago that his “long-term outlook remains bullish” with respect to gold, and is maintaining it as an asset component of Greenlight.
While Rothschild appears to view gold more from the standpoint of its shorter-term tactical utility and Einhorn sees it from both a tactical and strategic perspective, presently, the overseer of the world’s largest hedge fund, Ray Dalio, founder of Bridgewater Associates (roughly $240 billion under management), firmly believes gold has a place as a fixed, ongoing component to a portfolio, and has famously said that “if you don’t own gold, you know neither history nor economics.”
Dalio’s more secular perspective on gold as a portfolio component contrasts somewhat with his overall view that secularism in investing is a loser. It speaks, however, to his rock-solid belief in the important role gold can play as a fixed alternative (to equities) asset.
There’s rather an odd irony about gold and silver, in that despite their standing as the quintessential symbols of wealth and value since time immemorial, the metals often struggle to find favor with “regular” investors today. Such is not the case, however, with asset managers like Rothschild, Einhorn, and Dalio, who are anything but regular. Whether focused on gold’s inflation-fighting capacity, its organic quality as a store of value, or the metal’s potential to thrive in a world fraught with pronounced economic and geopolitical risk, these investors clearly recognize the important benefit it can provide in helping to maximize total asset value over the course of both shorter- and longer-term time horizons.
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