A commodity with no intrinsic value and no dividend yield.
How can that be an attractive investment?
For years I have laughed at the gold bugs and their price predictions… but here I am today standing firmly on their side.
If you’ve been reading my letters lately, then you know that I’ve been recommending you add and hold gold in your portfolio.
I feel it’s time to explain, in full detail, why I’ve finally come around to this position.
What’s Wrong With This Picture…
Let’s start with the big picture.
As I’ve been laying out in recent days, I believe the current recession risk is higher than you might think.
We are at the end of an economic cycle. This alone should prompt you to begin adding countercyclical assets to your portfolio. However, when you dive into the big picture and begin assessing the risks overall, you see that a recession could strike at any moment.
The necessary prerequisites exist already. Most asset prices are inflated, the degree of systemic risk in the form of corporate debt is great, and the global economy is contracting.
All this dangerous cocktail needs is a trigger… and the potential for this trigger exists in the form of the U.S.-China trade war.
Should the situation escalate—should, for example, additional tariffs be imposed or negotiations break off—the U.S. economy will undoubtedly sink into a recession. You can find more details on why this will happen in my last letter.
Trump and Xi are both populists. Populists are always dangerous for the economy. They tend to pursue policies with short-term effect while disregarding long-term risks and are known for their rash decision making and aggressive approach.
All this geopolitical context adds up to a very strong case for gold.
No Place To Hide But Gold
Of course, you could say: But there are other safe-haven assets out there.
And in normal times you would be right.
However, most asset classes are so inflated right now that they are not appealing options.
Defensive stocks are offering dismal dividend yields, as are high-grade bonds—typically around 3%. The same is true for money market funds, certificates of deposit, and real estate, which has reached bubble status many places around the world.
Gold stands alone as the only asset class whose value hasn’t inflated over the last decade.
We’ve reached the point where money has no attractive alternative. Everything else is simply too expensive.
Layer over this reality the significant risk of a recession within the next year and you understand why I say:
Buy gold now. Your portfolio needs it.