What Does Record Gold Mean?

On today’s show we are looking at what is happening in precious metals and the narrative attached to these recent record setting prices.

This past week gold has hit new all time record highs of just above $3800. Price peaked at $3820 an ounce, surging nearly $40 an ounce in the opening moments of trading on Monday morning. So far gold is up 10% in the last 30 days and up 41% in the past year. 

Of course the purists out there will probably argue that gold has not risen. It’s the dollar that has fallen in reference to gold and that gold is the only true historic store of value.

We are seeing similar moves in the other benchmark metals. Silver also hit 14 year highs this week above $47 per ounce as of the time of this recording. That is an increase of 20% for the month and 45% in the past year. 

It’s a similar story for platinum and palladium. Platinum is up 18% for the past month and 58% for the past year. Palladium is up 17% in the past month and 27% in the past 12 months.

We know that several things happen in an inflationary environment. Purchasing power for those on fixed income gets wiped out. Savings get wiped out and debt gets wiped out. We can also see asset prices rise unless we are talking about a Venezuelan style inflation where asset prices collapse due to a complete breakdown of the economy.

So in an inflationary environment you don’t want to be the one holding the debt. In fact the people at Morgan Stanley just updated their recommendation for a balanced portfolio. The traditional Wall Street version of the balanced portfolio has been 60% stocks and 40% bonds. They never mention real estate of course because they can’t sell real estate and they don’t make any money if you buy real estate.

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Episode Transcript

(00:00):
Welcome to the Real Estate Espresso podcast, your morning
shot at what's new in the world of real estate investing.
I'm your host Victor Minash. On today's show we're looking at
what's happening in precious metals and the narrative
attached to those recent record setting prices.
This past week gold has hit new all time record highs of just
about $3800. Many analysts are forecasting
breaching 4000 an ounce, the price peak at 3820 an ounce this

(00:25):
morning, surging nearly $40.00 an ounce in the opening moments
of trading on Monday morning. So far, gold is up almost 10% in
the last 30 days, 41% in the past year.
Of course, the purists out therewould probably argue that gold
has not risen. It's in fact the dollar that's
fallen in reference to gold and that gold is the only true
historic store of value. Now we're seeing similar moves

(00:47):
in other benchmark metals. Silver also hit a 14 year high
this week above $47 an ounce. That's up almost 2% for the day,
an increase of 20% for the monthand 45% in the past year.
It's a similar story for platinum and Palladium.
Platinum is up 18% for the month, 58% for the year.
Palladium is up 17% in the last month and 27% in the last 12

(01:11):
months. The concern centers around
inflation and inflation expectations.
Government deficits show no signs of disappearing.
The impact of the international trade wars also soon to be
inflationary. We know that several things
happen in an inflationary environment.
Purchasing power for those on fixed income gets wiped out,
savings get wiped out, and of course debt gets wiped out.

(01:33):
We can also see the asset pricesrise until we're talking about,
say, a Venezuelan style inflation where asset prices
collapse due to a complete breakdown of the economy.
But in an inflationary environment where of course the
economy is still functioning, you don't want to be the one
that's holding the debt. In fact, the people at Morgan
Stanley just updated their recommendation for a balanced

(01:53):
portfolio. The traditional Wall Street
version of the balanced portfolio has been 60% stocks
and 40% bonds. Of course, they never mentioned
real estate because they can't sell real estate and therefore
they don't make any money if youbuy real estate assets.
But what's striking is that the latest balanced portfolio
recommendation is 60% stocks, 20% bonds, and 20% in gold.

(02:16):
That's a huge departure from a Wall Street firm that has
traditionally represented the most stereotypical of Wall
Street recommendations. It makes sense that you don't
want to be holding bonds at a time when the US government is
looking to refinance a very large portion of its 38 trillion
in existing debt. We know that gold and other
precious metals have one redeeming quality about them.
They're extremely liquid. You can find a ready buyer for

(02:38):
your gold at or near the market price on any day of the week.
In general, precious metals don't generate income.
They serve purely as a hedge against inflation and as a store
of value, but not much else. Real estate's the other major
hedge against inflation and as astore of value.
Now, all real assets, including gold and real estate, can
fluctuate in value in the short term.

(02:59):
Now I've maintained A philosophythat inflation is here to stay.
Even countries like Germany, which have been among the most
financially conservative ever since World War 2, they've
relaxed their spending limits inresponse to economic crises that
they're currently facing. And this is how the slippery
slope always begins. There's a genuine crisis that
becomes a pretext for governmentspending.

(03:20):
It might be a weather event, or a global pandemic, or a military
threat or financial crisis. The spending is almost always a
response to a crisis, But once the spending is started, it's
very difficult to take it away. And this is how deficit spending
grows and grows and grows. Latest negotiations between
Democrats and Republicans with afunding deadline looming is

(03:40):
proof that unsustainable deficitspending is here to stay.
We will continue to face debasement of the currency.
The hedge against inflation forms the core of any investment
portfolio. Now we're in an environment
where selective investment in real estate, in the right asset,
in the right location, at the right price, and with the right
debt structure can make a lot ofsense.

(04:02):
I know I threw out a whole bunchof caveats in a single sentence,
but the reality is all of those decisions do make a difference
in the quality of the investment.
Yes, there are a lot of moving parts, but if you get them
right, they can represent a lifetime of wealth creation and
preservation. This requires a regular process
of taking a step back and look at the big picture of your
portfolio and the macro environment.

(04:22):
You want to make sure you're notover leveraged, and if you are,
figure out the steps to take to rectify the situation and reduce
your leverage. If the property's facing some
headwinds, maybe slow absorption, whatever the case
may be, you need to figure it out and get things back on
track. This is your role as the owner
of the asset, or at least to make sure you have the right
people managing them. These are not passive
investments, but active businesses.

(04:44):
Buying gold and other precious metals is the core of any
investment portfolio, and it's something to do when you don't
know what else to do. And as you think about that,
have an awesome rest of your day.
Go make some great things happen.
We'll talk to you again tomorrow, yeah?