Don’t tell Jim Grant, the publisher of Grant’s Interest Rate Observer, that gold is a hedge.
The author and publisher said the metal is much more dynamic; providing a trifecta of price, value and sentiment, and investors should have exposure to it.
“[G]old is an investment in monetary and financial disorder – not a hedge. You look around the world and you see exchange rates are properly disorderly, when you look around the world of lending and borrowing -- we are in a regime of price control by another name, so-called zero percent rates and quantitative easing by the world central banks – we are in one of the most radical periods of monetary experimentation in the annals of money,” Grant told Kitco News Thursday.
Grant added that it could be that it all works out, albeit a very “low probability.”
“You want to have exposure to the reciprocal asset of the paper assets that are the most popular - so gold, to me, is now the conjunction of price, value and sentiment, and I am very bullish indeed.”
Gold prices are on track for its longest run of losses since 1996. After reaching five-year lows this week, the metal was relatively quieter on Thursday with prices slightly rebounding on some bargain hunting in the spot market. Kitco’s spot gold was last up $0.60 at $1094.60 an ounce.
Grant summed up the gold selloff as “Mr. Market having a sale,” and added that the downward spiral is “terrifically vexing but a wonderful opportunity.”
He explained that no one knows the bottom for the metal and that should not be the sole focus.
“The important thing to recall is why those of us who own it, bought it. What is it about gold that ought to make it appealing – when it seems to be absolutely the thing you don’t want to have.” He added that gold thrives in the face of monetary turmoil, disorder and uncertainty, noting, “I think we have all three of these things.”
On the topic of U.S. Federal Reserve rate hikes, Grant said the central bank is in a hurry to raise rates.
“The Fed feels it must act just for institutional pride; but, money supply growth is dwindling, the turnover rate of money likewise, the only thing that is dynamic in the world of money and credit is the issuance of more and more dubiously sourced debt, and more and more lenient terms,” Grant said. “What debt does is two things: it pushes forward consumption and pushes back evidence of business failure,” he added.
Grant said he likes owning physical gold particularly South African Kruggerands. He added he is also the owner of “too many gold mining shares” for which he has, “a great deal of worry for the present but a great deal of conviction for the future.” Mining stocks have suffered even more since lower gold prices means less revenue per ounce of the metal for producers. The Market Vectors Gold Miners exchange-traded fund (GDX), which consists of stocks of gold-mining companies, was down $1.70, or 11%, to $13.72 on Thursday.