Dear friends,
Last fall, with the yellow metal at $1,550, I concluded that gold would continue to gain and that we were still in the beginning stages of an uptrend. I drew comparisons to previous bull markets, going all the way back to the late 1970s when, as a young trader, I wrote my first book on gold. “By the time my book hit the shelves at U.S. and Canadian stores,” I commented, “the metal topped $250. Less than two years later, it was $850.
Well, we’re now in the midst of COVID-19, a pandemic that has caused central banks and governments to throw all monetary and fiscal prudence to the dogs. Money supplies are skyrocketing, debt is being monetized, interest rates are falling. The system brutally punishes the few who exercise financial prudence, while protecting the multitudes who overconsume today at the expense of tomorrow.
In making my case for continued gold ownership, I could resort to numerous historical precedents and present an array of statistical tables. Instead, let me keep it simple. I’ll compare gold to other assets you may consider for investment.

Consider stocks. Following their deep first quarter swoon, they’ve raced back to valuations that stand in no relationship to today’s economic realities. Of course, stocks at least afford ownership in something real and, if you pick wisely, may pay you a handsome dividend income. Still, the chances of seeing your stock portfolio get hurt by another nasty sell-off are high.
Consider bonds, at this time probably the most terrible choice. You’re buying someone’s promise to repay your capital, without any compensation to speak of—or, in the case of negative interest economies, while paying a price during the period you hold the bond. Worse, at a time when many issuers are the most indebted in history, the promise of repayment has to be questioned.
Consider real estate. While you own something tangible that you can enjoy yourself or rent out, property investments can undergo protracted periods of illiquidity. Moreover, real estate is fully valued and, with consumer balance sheets strained, vulnerable.
Consider cash. At a time when more and more money is being created, holding it as an investment is imprudent. However, resorting to cash as a temporary parking spot, to be deployed when segments of the financial asset market materially weaken, is an eminently practical solution.

Consider gold. Like cash in any currency, it is globally recognized liquidity—but unlike cash, it cannot be printed. Unlike a bond or cash in the bank, gold is not someone else’s liability. Gold has favorable demand-supply fundamentals, and unlike most other financial assets, gold’s current valuation is easy to justify.
In our fully managed capital preservation accounts, we currently hold 45% in stocks, 40% in cash and 15% in gold. We hold no bonds and no real estate proxies. The 15% gold allocation has stabilized our portfolios very effectively: we hardly lost any ground during February/March and, for the year to date, are slightly ahead of the curve. Enduring one of the most chaotic periods in financial market history without experiencing serious volatility was a rewarding experience. It’s what gold, the great portfolio stabilizer, does.
Now, let’s take a look at the future. I have no idea how high gold will go, but the preconditions for a serious rise are all in place: central banks creating trillions out of thin air; supply chains weakening and trade disputes proliferating; financial asset markets becoming more volatile; social upheaval; the U.S. dollar’s role as a reserve currency being challenged; geopolitical tensions, especially between the major powers, rising. The chart at the top of this page shows gold’s steady march when viewed against the world’s key currencies over the past half century. What happened is simple: gold’s supply is limited; paper money’s supply is unlimited.

On the left is an illustration of how fast gold can move once people seek refuge from paper. So far, the yellow metal has been slow to react to the myriad issues that are supportive of it. Six months ago, before the pandemic and the multitrillion dollar pump priming, gold was at roughly $1,500; now it’s at $1,760. In the late Seventies, under circumstances not nearly as alarming as today’s, gold acted in a similar way. It crawled along, appreciating at a modest clip, then more than tripled in the space of a year. No one knows whether we’ll see a repeat of that performance and to me it doesn’t matter.
The way I see it, gold does a great job protecting and stabilizing your overall portfolio, affords extraordinary liquidity and is blessed with sound fundamentals. If enough investors realize that and the metal gets super-charged, all the better!
Best regards,
Peter Cavelti
