Billionaire Investors On Why Precious Metals Should Be Part Of Any Investment Portfolio

by: Sprott Asset Management


Precious metals are an important part of any investment portfolio, as they help an investor with issues as wide as wealth preservation, inflation hedging, and appreciation potential.

Sprott recently sponsored an infographic created by Visual Capitalist, highlighting why some of the greatest investors of today, including Lord Rothschild, Einhorn, Dalio, and Druckenmiller include gold in their portfolios.

While many people view gold solely as a store of value of inflation hedge, based on the current market context, there are real reasons to expect appreciation also.

Sprott Physical Bullion Trusts recently sponsored an infographic created by Visual Capitalist, discussing why the world’s billionaire investors buy precious metals.

As Ed Coyne, Executive Vice-President at Sprott, has said,"When an investor looks at the long-term performance patterns of gold and gold equities over multiple market cycles, we (Sprott) would say, gold is the original alternative investment,” and as the infographic highlights, these great investors agree.

They believe that for any investor, there are 6 key reasons to buy precious metals, including gold. Those reasons are:

  1. Wealth Preservation
  2. Store of Value
  3. Portfolio Diversification
  4. Fundamentals
  5. Potential Future Upside
  6. Inflation Hedge

In the infographic, quotes from investing greats like Lord Jacob Rothschild, David Einhorn, Ray Dalio, and Stanley Druckenmiller are highlighted to explain how gold can help fill each of these needs.

The most important issue, as Lord Rothschild highlights, when discussing why gold can be an excellent tool for wealth preservation and storing value, is because of concerns about central banking. As Rothschild said recently, central bankers are continuing the “greatest experiment in monetary policy in the history of the world” and that creates significant risks. He also said “We are…in uncharted waters and it is impossible to predict the unintended consequences of very low interest rates, with some 30% of global government debt at negative yields, combined with quantitative easing on a massive scale.”

In Lord Rothschild’s view, the best way to protect your wealth in an era where currencies and global finance are in truly uncharted territory is to invest in precious metals, which are not exposed to those risks.

David Einhorn believes that it is gold’s value as an inflation hedge that makes it an important component of his portfolio. He observed recently that “we believe the increasingly adventurous monetary policy is bullish for gold” and “The (Trump) administration comes with a high degree of uncertainty, and its policy initiatives appear to be focused on stimulating growth and, with it, inflation.”

Einhorn sees a situation brewing currently where the focus globally, and in the US, on stimulating growth is also likely to end up fueling inflation too. Gold, which cannot be inflated away if central bankers continue to try to finance growth through quantitative easing, as an ideal investment to protect against inflation.

Ray Dalio has been tremendously successful running the world’s largest hedge fund, Bridgewater Associates, a quantitative hedge fund that wouldn’t always be synonymous with gold investing, but he too understands the importance of gold as a component of his portfolio. In his view, it is important as a store of value and an essential component of diversifying his portfolio.

Dalio recently observed “we have a situation now where when you have too much debt. Too much debt leads to printing of money to make it easier to service. So all of those things mean that some portion [of an investment portfolio] should be in gold.” In Dalio’s mind, gold shouldn’t be your entire portfolio, but it is an essential part of your portfolio, because without it you are not embracing the risks involved in the current market environment.

A lot of the reasons for holding gold tend to be as a diversification tool for other investments, and as a store of wealth to protect your portfolio. But Stanley Druckenmiller, former chairman and president of Duquesne Capital, has a far more direct reason for wanting to invest in gold, future upside and the fundamentals of gold. In Druckenmiller’s eyes in 2017, he saw a situation where no country wants its currency to strengthen, and in an environment where currencies are going to weaken, that will be a positive for gold. As he said “Gold was down a lot, so I bought it.”

It wouldn’t be the first time that Druckenmiller had a successful big bet related to currencies, he has experience in currency trading, having been part of Soros’ trade to break the Bank of England in 1992.

There are a lot of reasons to have gold as a part of an investment portfolio, but there don’t seem to be many reasons to not have that exposure, no matter the size of an investor’s portfolio.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Past performance is no indication of future returns. The views and opinions expressed herein are those of the author’s as of the date of this commentary, and are subject to change without notice. This information is for information purposes only and is not intended to be an offer or solicitation for the sale of any financial product or service or a recommendation or determination by Sprott Global Resource Investments Ltd. or any affiliated entity that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the objectives of the investor, financial situation, investment horizon, and their particular needs. This information is not intended to provide financial, tax, legal, accounting or other professional advice since such advice always requires consideration of individual circumstances. The products discussed herein are not insured by the FDIC or any other governmental agency, are subject to risks, including a possible loss of the principal amount invested. Generally, natural resources investments are more volatile on a daily basis and have higher headline risk than other sectors as they tend to be more sensitive to economic data, political and regulatory events as well as underlying commodity prices. Natural resource investments are influenced by the price of underlying commodities like oil, gas, metals, coal, etc.; several of which trade on various exchanges and have price fluctuations based on short-term dynamics partly driven by demand/supply and also by investment flows. Natural resource investments tend to react more sensitively to global events and economic data than other sectors, whether it is a natural disaster like an earthquake, political upheaval in the Middle East or release of employment data in the U.S. Low priced securities can be very risky and may result in the loss of part or all of your investment. Because of significant volatility, large dealer spreads and very limited market liquidity, typically you will not be able to sell a low priced security immediately back to the dealer at the same price it sold the stock to you. In some cases, the stock may fall quickly in value. Investing in foreign markets may entail greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks. You should carefully consider whether trading in low priced and international securities is suitable for you in light of your circumstances and financial resources. Sprott Global, entities that it controls, family, friends, employees, associates, and others may hold positions in the securities it recommends to clients, and may sell the same at any time. The author is receiving compensation for writing this article.