The Wall Street Journal, in a recent article, Globalization, Gold and the Return of History discussed economist Stephen D. King’s book Grave New World: The End of Globalization, The Return of History.
King argues that increased globalization is a modern anomaly—with major world powers no longer willing to compromise national interests for global growth. He cautions that if globalization is rejected, a world of rival states with conflicting aims will arise, leading to the disintegration of global economic order. It’s quite a provocative and disturbing perspective.
While I believe a full retreat from globalization will not happen (you can’t put the genie back in the bottle) I do think there is a more inward-looking political card in play. Withdrawing from the Paris Climate Accord. A renegotiation of NAFTA. Brexit. Populist leaders emerging. Fortified border talks. Defending American sovereignty over trade policy.
A brewing protectionist stance is simmering and it is creating insecurity and uncertainty.
“We’re dealing with inherent deep uncertainty,” according to Mr. King. “It’s all very well assuming that globalization is the natural order of things, but it’s not. You should at least have a hedge.”
And what is the hedge?
According to the article and book, “Perhaps the best alternative is to use part of a portfolio to hold insurance, in the form of what Mr. King calls a ‘universally acceptable store of value,’ physical gold. If the global trade and financial system retreats to national borders, gold becomes one of the few international assets. If everything turns out fine for free traders, the cost of the gold has to be thought of as an (expensive) insurance premium.”
As the CEO of a precious metals company, I am encouraged when people understand that gold (and silver) have intrinsic value and are a critical component of maintaining one’s purchasing power as the dollar devalues and the world grows more unstable. But it discourages me that it takes an international incident or a bubble to burst or a market to crash to get investors’ attention to start buying precious metals.
If I were gold, I’d be constantly suffering a huge identity crisis because no matter how well I perform over the long-term, even outperforming the Dow for the past 40 years, very few people pick me for their portfolio! I’d feel like the kid who always got picked last to play right field on the baseball team.
After spending a decade steeped in the precious metals market and talking with men and women all across the country about their concern of feeling income rich yet retirement poor, I am still astounded that less than 2% own physical gold or silver.
If over the last fifteen years they had diversified just a portion of their portfolio into precious metals instead of keeping it all in the Dow, they would have enhanced their retirement nest egg. Since 1970 the Dow is up 20 times (which is great) and gold is up 33 times (which is even greater!)
Even though far too few see gold as a great investment opportunity, I do believe it is having a bit of a renaissance. And savvy investors are adding it to their diversification strategies. When they see billionaires like Stanley Druckenmiller and Ray Dalio buying gold, and large financial institutions like JP Morgan, Goldman Sachs and HSBC purchasing literally tons of precious metals for their own house accounts, investors take note and follow suit!
It’s easy to be pessimistic about our nation’s ability to withstand the multiple economic forces weighing heavily on our financial stability. But I am very optimistic smart investors will continue to create, preserve and protect their wealth IF they choose to carefully balance their portfolios and hone their strategies around diverse asset classes, including precious metals.
Diversification is the winning hedge, not doubling down on one “bet the ranch” asset play. So I am carefully and thoughtfully diversifying, not betting the ranch. Because I’d really like there to be a ranch when I retire.