[W]hen I see op-eds like The Retreat of Globalization on page A17 of the WSJ it just reinforces my view to gain more exposure over time to gold, gold mining stocks, and select strategic raw materials (crude oil comes to mind). Transports in such a world of shrinking world trade flows, stepped-up protectionism and competitive devaluations are vulnerable and in turn, the prospect of cost-push inflation and reduced potential GDP growth prospects in a more inward-looking global economy means that hard assets are going to remain in vogue (little wonder the art market has remained so hot). Heightened geopolitical risks also raised the prospect that basic materials will he re-rated to the high side by the investment community. Money printing and negative real rates as far as the eye can see will ensure that the path of least resistance will be for much higher precious metals prices. An Obama victory, which likely comes with it an extension of Ben Bernanke as Fed Chairman, would only reinforce that trend...
What matters most are real rates, which the Fed has pledged to keep negative as far as the eye can see. It was commented on at the excellent Big Picture conference last week that none of the speakers even mentioned gold (including me!). That is a huge contrary bullish standpoint.
Even Byron Wien (see his superb interview on page 38 of Barron's) has become constructive on the outlook for bullion, and like me, he sees it as a steady alternative to paper currencies - a currency in its own right that is no government's liability and has a much more inelastic supply curve. I have to say that the venerable Buttonwood column on page 84 of the Economist also contained numerous reasons to have core exposure to gold... The article goes on to say, by the way, that the current level of negative rates is consistent with a gold price of $2.000 an ounce.
As an aside, the gold mining stocks have finally started to outperform and have a ton of catching up to do. This is one area of the market we are excited about. Gold and income-generating securities.
Vitus: We are not among the inflationistas (We are going to be Greece! Zimbabwe!!). However, there are good reasons to maintain some exposure to gold.