Investors have historically moved to Gold in times of uncertainty. Gold has moved substantially higher since the market turmoil in the banking sector kicked off last week. Here’s why investors should be interested in Gold: perpetual money printing by the Fed, ever larger fiscal deficits and a mounting debt load – the combination of which leads to less purchasing power and a lower standard of living.
Sunday’s Fed bail out only exacerbates the problem and creates further Dollar dilution, more public debt, more price inflation and of course greater moral hazard (see our note on the Bank Term Funding Program). Our enthusiasm for Gold increased dramatically when the Fed started to print at scale in 2020 to support its massive QE program, its various pandemic credit facilities, ETF purchases and to support fiscal spending (CARES Act and various other fiscal entitlement programs that put the national debt at approximately $90 trillion). The Dollar is going to zero over time as has every other fiat currency in history. We had a massive bail out Sunday and more bail outs and QE are coming (along with inflation and moral hazard).
With respect to Software companies as a safe haven, sure – high quality, high cash flow margin Software companies are operationally safe – a great depression won’t take out MSFT nor GOOGL. However, this does not mean that I love Software valuations. Software still carries lofty valuations (in general), and I believe that fundamentals are weaker today versus a month ago and compared to a week ago.
Related articles:
- Short-Term Paper, Quality Names and Gold
- The Fed’s Vicious Cycle and Gold
- Where Is The Gold Rally?
- Worth Its Weight In Gold?
- Treasury’s Vicious Debt Cycle
- Fed Bail Out Creates Enormous Moral Hazard
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