Gold may not be the most thrilling investment today, but it remains a crucial asset for portfolios during turbulent times, says Simon Popple, CEO of Brookville Capital. Despite its lack of excitement, gold offers several advantages that make it worthy of consideration.
A Reliable Inflation Hedge
Gold is traditionally seen as a hedge against inflation. As inflation erodes the value of currencies like the Euro, the price of gold typically increases, maintaining its value over time. This characteristic makes gold a dependable asset during periods of high inflation and economic instability.
Economic Turmoil Drives Gold Investment
Recent months have seen high inflation, soaring interest rates, and increasing economic uncertainty globally. In such scenarios, investors often turn to precious metals like gold and silver for their inflation-hedging properties. Popple emphasizes, “Gold has been valuable for thousands of years. Regardless of the social, political, or financial climate, gold never loses its value or defrauds investors. It is the ultimate form of money.”
Finite Supply vs. Fiat Currency Printing
One of gold’s significant advantages over fiat currencies is its finite supply. Governments can print more money at will, often leading to hyperinflation. In contrast, the amount of gold is limited to what can be mined. “Fiat currencies are backed by the governments that issue them,” Popple explains. “Overprinting money reduces purchasing power and leads to inflation, making the currency less valuable.”
Gold’s Liquidity and Global Consistency
Gold’s liquidity is another advantage, allowing it to be easily converted into fiat currencies. Unlike fiat currencies, properties, and other assets that vary across countries, gold remains consistent worldwide. Additionally, gold has a relatively low correlation with other assets. Stocks and bonds, for instance, are influenced by similar factors and tend to move in the same direction. “Gold’s standout feature is its low correlation with traditional assets,” Popple notes. “This makes gold an effective tool for balancing portfolios, reducing overall risk, and enhancing stability.”
Performance During High Debt Periods
Historically, gold has performed well during times of high debt. Popple observes, “During periods of increasing debt, gold generally performs well. While there are times when debt rises and gold falls, over the long term, gold tends to do okay. I like having exposure to an asset that could do well if debt continues to increase.”
Flexibility and Currency Conversion
Gold also offers flexibility in currency conversion. “If my other investments suffer due to currency depreciation, I can convert my gold into a different currency or back into the same one,” Popple says. “This flexibility is valuable, especially when currencies fluctuate significantly.”
Investment Options
Investors can invest in gold directly through bullion, coins, and jewelry, or indirectly through gold exchange-traded funds (ETFs) and shares of gold mining companies. First-time or novice investors often start with indirect investments to familiarize themselves with the market.
Challenges in a High-Interest Rate Environment
However, gold is not an interest-bearing asset, making investors hesitant during high-interest rate periods. When asked if investors might choose gold over interest-bearing assets, Popple suggests, “A diversified portfolio should include gold. It’s ‘time in the market,’ rather than ‘timing the market,’ that’s important. For those concerned about timing, they can invest gradually over time.”
Gold vs. Bitcoin: The Ongoing Debate
The rise of Bitcoin has sparked debates about its potential as an inflation hedge. While Bitcoin offers limited supply, its volatility makes some investors skeptical. Popple prefers gold for its established track record. “Gold has a history, whereas Bitcoin doesn’t,” he says. “With Bitcoin’s high price, I’m not comfortable buying it now. Governments like to control money supply, and Bitcoin could be targeted or banned in a crisis. While I’m not against it, my priority is gold. Once my gold investments are in place, I might consider a small exposure to Bitcoin, but gold comes first.”
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