'De-Dollarization' Still Sees Gold Underinvested

Lots of talk, record price, little investing...

INVESTORS and analysts continue to raise the alarm over the de-Dollarization trend, writes Frank Holmes at US Global Investors.

Stephen Jen, CEO of asset management firm Eurizon SLJ and a former managing director at Morgan Stanley, says the Dollar is losing its reserve currency status at a "stunning" pace. According to him, the Dollar has given up about 11% of its market share since 2016 and double that amount since 2008.

Jen appears to blame US sanctions against Russia for the collapse. "Exceptional actions taken by the US and its allies against Russia have startled large reserve-holding countries," he wrote in a note last week.

Elon Musk echoed the sentiment, tweeting: "If you weaponize currency enough times, other countries will stop using it."

Meanwhile, billionaire investor Stanley Druckenmiller says that shorting the US Dollar is his only high-conviction trade right now, adding that he's never seen such uncertainty in global markets in his 45 years of investing. In the early 1990s, Druckenmiller – then working with George Soros – famously bet against the British Pound Sterling and made more than $1 billion.

If what Jen, Musk and Druckenmiller say resonates with you, then gold (and Bitcoin) may make sense.

In light of this, I was surprised to see that gold still represents a relatively small fraction of the $266 trillion investable asset market. The global stock of gold bullion – including bars, coins and gold ETFs – that investors currently hold amounts to around $3 trillion, according to the World Gold Council (WGC). This represents around 1% of the total amount invested in all financial assets, from stocks and bonds to alternative assets.

I believe it's important to have a well-diversified portfolio, and that includes exposure to gold. I've always recommended a 10% weighting in gold and gold mining stocks, and with the Dollar potentially on uneven footing, my conviction has grown even stronger.