In the latest episode of Money Metals' Midweek Memo, host Mike Maharrey delves into the mischaracterization of gold by the mainstream media and its implications for investors.
Maharrey starts with an analogy of shark attacks from a few years ago, illustrating how media hype can distort reality. Despite media reports of an unusual spike in shark attacks, the actual number was below average.
Similarly, Maharrey argues, that gold suffers from a misrepresentation that paints it as a poor investment, which is not supported by factual data.
Media's Role in Perpetuating Myths
Maharrey highlights the media's bandwagon effect, where one outlet's report triggers a cascade of similar stories, creating a false narrative. This was evident with the shark attack scare and is now seen with the portrayal of gold. He explains that the mainstream media often dismisses gold as a second-class investment, largely due to the influence of the regime, which benefits from promoting fiat money over gold.
The Regime's War on Gold
The host suggests that the regime needs the public to favor fiat money to maintain its power, as fiat money allows for endless borrowing and spending, unlike gold, which is finite. This is why, according to Maharrey, the regime and the media perpetuate the idea that gold is a useless relic, echoing sentiments from economists like John Maynard Keynes.
The True Performance of Gold
Contrary to mainstream narratives, Maharrey presents data showing gold's strong performance. Over the past 20 years, gold has outperformed most major asset classes, except U.S. stocks. Since 1971, when the U.S. abandoned the gold standard, gold prices have increased by nearly 8% annually. Even in recent years, despite media claims, gold has held its value and provided significant returns.
Gold as a Superior Investment
Maharrey provides a compelling analysis of gold as an investment, comparing its performance and advantages to other asset classes. Historically, gold has outperformed most major assets over the last two decades. While U.S. stocks have performed better, gold has outshone dollars, U.S. Treasury bonds, global stocks, commodities, and emerging market stocks in terms of returns. This trend underscores gold's resilience and its capacity to preserve and increase wealth over time.
Since 1971, when the U.S. decoupled the dollar from gold, the average price of gold has increased by nearly 8% annually. This long-term growth demonstrates gold’s effectiveness as an inflation hedge, contrary to some mainstream narratives. During periods of inflation, gold typically holds its value better than fiat currencies, offering a reliable means of preserving purchasing power.
Gold also provides significant diversification benefits due to its low correlation with other asset classes. It tends to appreciate when other assets decline, thus reducing overall portfolio risk and offering stability. Furthermore, gold is extremely liquid, with high trading volumes and global recognition, ensuring that investors can easily buy and sell gold, even during times of economic uncertainty or market volatility.
The demand for gold is diverse, spanning jewelry, technology, investment, and central bank reserves. This diversity gives gold resilience and the potential to deliver solid returns under various market conditions. During economic downturns, gold often performs well. For instance, during the early days of the Great Recession, while other assets were plummeting, gold increased in value by 21%, providing a much-needed hedge for investors.
Gold is widely regarded as a safe haven asset, particularly during times of geopolitical chaos or economic instability. Its historic role as a store of value and medium of exchange for over 5,000 years reinforces its reliability. Compared to assets like real estate, hedge funds, and most commodities, gold has shown superior performance, especially during financial crises. It has also consistently outperformed bonds since 1971.
Despite the perception that gold hasn't performed well in recent years, it was up about 133% last year and outperformed many other asset classes, including emerging market stocks, U.S. bonds, the dollar, and global treasuries. Maharrey concludes that the mainstream narrative portraying gold as a poor investment is unfounded. Instead, he advocates for gold’s inclusion in investment portfolios due to its proven track record, stability, liquidity, and diversification benefits.
Mainstream Recognition of Gold
Interestingly, even mainstream outlets like CBS News have recently highlighted the benefits of owning gold, acknowledging its impressive performance. Bank of America analysts are predicting gold prices could reach $3,000 within the next 12 to 18 months, driven by non-commercial investment demand and continued central bank purchases.
Central Banks' Shift Towards Gold
The podcast also discusses the trend of central banks diversifying away from the U.S. dollar and increasing their gold reserves. For example, China's central bank has added substantial amounts of gold while reducing its holdings of U.S. Treasuries. This de-dollarization trend underscores gold's importance as a stable reserve asset.
The Future of Gold Amid Economic Uncertainty
Maharrey speculates on the impact of bond yield volatility and the potential for a long-term bear market in bonds. He argues that the Federal Reserve's inability to control rising interest rates could lead to increased demand for gold as a safe haven. This, combined with the likely return to quantitative easing, could further boost gold prices.
Conclusion
Maharrey concludes by urging listeners to consider adding gold and silver to their portfolios. He emphasizes that most portfolios lack gold, which means many investors are missing out on its benefits as a diversifier and a hedge against economic instability. He recommends contacting Money Metals Exchange for advice on incorporating precious metals into investment strategies.
Overall, the episode underscores the disparity between media narratives and the factual performance of gold, advocating for a more informed and strategic approach to investing in precious metals.
