Financial Times: Gold is Looking More and More Attractive

November 25, 2019

Article by Rana Foroohar in Financial Times

Gold bugs have always struck me as paranoid. You have to really believe the sky is falling in order to hoard physical bars in a digital age. So, it’s rather worrying that some investors and central bankers are talking up gold.

The Dutch Central Bank recently argued in an article that if there were to be a major monetary reset, “gold stock can serve as a basis” to rebuild the global monetary system. “Gold bolsters confidence in the stability of the central bank’s balance sheet and creates a sense of security.”

Talk of gold, however, does not. Investor Ray Dalio recently spooked attendees at the Institute for International Finance conference when he mentioned the possibility of a flight to gold because of his concerns about America’s fiscal position.

That is not a new point. Since at least 2016, financial titans including JPMorgan chief Jamie Dimon and hedge fund manager Stanley Druckenmiller have pointed out that unfunded pension and healthcare entitlements are a looming iceberg for the US economy. Indeed, one theory about the recent crisis in the “repo” overnight lending market is that it was caused by the federal deficit and the increasing unwillingness of investors outside the US to fund it. But Mr. Dalio went further, concluding that the American entitlement crisis meant the US Federal Reserve would have to continue to inflate its own balance sheet indefinitely, and keep rates low (or even negative) well into the future so the US could keep paying its bills.

That would depreciate the US dollar. Taken to its extreme, that never ends well.

Prior experiments with rapidly falling currencies include late-third century Rome, Germany’s interwar Weimar Republic and Zimbabwe. At some point, Mr. Dalio argued, nobody would want to own US debt or the dollar, and investors would look to other assets for safety. “The question is, what else?” he asked. “That’s the environment I think that we’ll be in. And there’s a saying that gold is the only asset you can have that’s not somebody else’s liability.”

To read this article in Financial Times in its entirety, click here.

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