Gold News

Mobius Backs the 10% Golden Rule

Inflation among the economic risks ahead...
MARK MOBIUS, the legendary emerging-markets investor, says that 10% of investors' portfolios should be in gold, writes Frank Holmes at US Global Investors.
That's in anticipation of currency devaluation as a result of unprecedented stimulus measures.
Speaking to Bloomberg last week, Mobius said that devaluation "is going to be quite significant next year, given the incredible amount of money supply that has been printed."
As such, it's going to be "very, very good to have physical gold that you can access immediately without the danger of the government confiscating all the gold."
I would add that even if you're not too worried about currency devaluation (you should be), gold still looks attractive as a diversifier, especially now that the stock market has ripped to new highs for a record number of days.
The S&P500 notched its 53rd record close of 2021 last Monday, the most ever in any calendar year through August, even as economic indicators spell weakness due to the pandemic.
Stocks also appear overvalued right now with a price-to-earnings ratio of more than 27. This may prompt some investors to wonder if the bull run is overextended and to seek a store of value such as gold or Bitcoin.
I second Mobius's call for a 10% allocation in gold, something I've recommended for years now. I call it the 10% Golden Rule.
But don't take my word for it. A recent study by the World Gold Council (WGC) shows that a gold allocation of 10% helped improve risk-adjusted returns over the past 20 years.
Between June 2001 and June 2021, a hypothetical portfolio that held 10% in physical gold had higher annualized returns and lower volatility that a portfolio with 5% in gold. It also outperformed a portfolio that was invested in a broad-based commodities index and one that wasn't invested in commodities or gold.
To Mobius's point about currency debasement, we're already seeing deterioration in the Dollar's purchasing power due to overheated inflation. In July, consumer prices rose 5.4% compared to last year, the second straight month of inflation over 5%.
Consumers across the Atlantic are facing similarly overheated price increases. The Eurozone's harmonized index of consumer prices (HICP) rose 3% in August from a year earlier, the fastest such rate since November 2011 and well above the European Central Bank's (ECB) target of 2%.
Some European investors are dealing with inflation by buying gold. German investors in particular loaded up on more bullion in the first half of 2021 than in any other period since at least 2009.
A 2019 survey conducted by the WGC found that about half of all German investors who owned gold said they did so to "protect their wealth." They certainly can't seek shelter in the 10-year German bund, which yields less than minus 4% right now on an inflation-adjusted basis.
Negative-yielding debt isn't just a German phenomenon, of course. As of today, about $15.7 trillion worth of government bonds around the world have yields lower than zero.

Frank Holmes is chief executive officer and chief investment officer of US Global Investors Inc., a registered investment adviser managing approximately $4.8 billion in 13 no-load mutual funds and for other advisory clients. A Toronto native, he bought a controlling interest in US Global Investors in 1989, after an accomplished career in Canada's capital markets. His specialized knowledge gives him expertise in resource-based industries and money management.

See the full archive of Frank Holmes.

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