John Hathaway, CFA, Senior Portfolio Manager, Sprott Asset Management, Douglas Groh, Senior Portfolio Manager, Sprott Asset Management, and Edward Coyne, Senior Managing Director, Global Sales, Sprott Asset Management discuss the value of gold as a portfolio protector and diversifier in a post-COVID economy.
Current macroeconomic consensus is that the stimulus being applied to the economy will lead to robust economic recovery and higher interest rates, but Hathaway doubts that these expectations will come to fruition. “The performance of the economy is not up to the very rosy expectations that you hear from the consensus,” says Hathaway.
Hathaway anticipates instead that the economy is headed for a slowdown, which will weaken tax receipts to the government and widen deficits, resulting in even more money printing. Therefore, because low interest rates act as a key tailwind for gold’s success, 2021’s current and anticipated low interest rates position the environment for gold to continue to flourish. If Hathaway’s prediction is correct, that current macro consensus overestimates the possibility of a robust economic recovery, then gold is set to reach new heights by a significant amount. Gold mining shares represent unprecedented value in comparison to conventional equity alternatives.
Groh outlines the value creation opportunities beyond just the gold price.“The sector is very deal oriented: there’s opportunity to create value through transactions whether it’s mergers and acquisitions, or whether it’s through property sales or some type of deal,” says Groh.
Gold has not only routinely outperformed all other asset classes since 2000, but it has proven itself to effectively provide portfolio protection and withstand uncertainty. Because of its low historical correlation to traditional investment, gold has proven itself to be an effective and lucrative portfolio diversifier. Historically, gold has maintained steady performance through severe uncertainty, including during the tax bubble burst, the Global Financial Crisis, and the onset of COVID-19. Just a 5-10% gold enhancement can enhance returns and reduce volatility.
“Gold and gold equity are not designed to replace your current assets; they’re designed to allow you to stay invested in your current assets by owning a portion of the market that has the history of diversifying your portfolio over time,” says Coyne.
Sprott Asset Management is a global leader in precious metals investments. Sprott offers a full suite of solutions in the precious metals space, as well as private lending and brokerage services. Sprott offers a range of investment options, including physical precious metals, active gold equities with physical gold, and passive gold equities.
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