Live: April 28th, 2020 2pm PT
Mark Stacey from AGF Investments and Jaime Carrasco from Canaccord Genuity discussed why gold is a critical part of every investment portfolio, serving as a market hedge. They brought great arguments in favour of this precious metal, especially bringing urgency to the decision to add gold to our investments during times of economic uncertainty.
You may find the slides available for download at the bottom with each presenter's biography.
00:00:01 - 00:03:44 Introductions
00:03:44 - 00:20:44 Mark Stacey, AGF Investments: Why investors haven't been buying gold in the last decade and why we are at a tipping point
00:20:44 - 00:44:00 Jaime Carrasco, Canaccord Genuity Wealth Management: Learning from history; how gold has performed in the past recessions and why
00:44:40 - 01:12:00 Q&A
(find bio and slides at the bottom of the page)
Why are investors not buying gold?
The dollar has been strong for the last 10 years (USD up 36%)
Inflation has been muted for the same period, and gold is seen as an inflation hedge
Investors have been drawn to markets that are less commodity related. The U.S. market has gone up 351% since 2009, more than double any other market in the world.
Why are we at a tipping point?
Signs of waning U.S. dollar since 2016. The US dollar decreasing returns over other currencies (12 month rolling return at 0%). This is good news for commodities.
Governments cutting interest rates, inflation isn’t overly high but high enough to generate negative real yields, which are positive for gold. Any time we have seen real yields turn negative we have seen gold go high.
Fed’s balance sheet increasing dramatically, especially now as the pandemic has pushed to increase the money supply.
Gold was moving higher than US equities from 2007 until pass the credit crisis of 2009 gold was moving higher than US equities but for the last years gold has been underperforming the US equities. Recently we have seen gold and gold stocks outperforming the US equities.
Since the end of last year, gold has been outperforming information technology stocks, similarly to the internet bubble times. Popular investments such as FANG stocks (Facebook, Amazon, Netflix, Google) may be a riskier investment at this stage.
10 year rolling return of gold shows a potential bottom at the bottom. The last time gold stocks started to rally in 2002 there was still a huge upside all the way to 2011.
Why add gold to your portfolio?
Asset allocation decisions have changed. Equities and fixed income will have a harder time generating returns.
Gold moves in a different direction than the rest of your portfolio, diversifying your risk. Any time the U.S. equity market has been down 5% or more, gold has fulfilled its role as a safe haven. There was an inflection point in 2016, generating positive returns in down markets.
Gold or Gold Stocks?
Both provide protection but they move differently.
Gold is underperforming gold stocks at the moment.
The volatility of gold stocks has decreased since 2016, besides the last two months where all sectors saw a spike in volatility.
Canaccord Genuity Wealth Management
(find bio and slides at the bottom of the page)
One of the problems with gold today is the generational gap. Since 1971 we have forgotten what gold is and how to invest in it.
Gold is money, all else is credit.
Throughout history gold has had a connection to debt.
A parallel between 1933 and today
The 1930s was a period of ultimate debt growth. There was a point where more debt wasn’t creating further growth (point of maximum utility).
Massive unemployment rates and populist governments arose around the world.
The gap between rich and poor getting bigger and bigger. The big problem was economic debt.
1930s - Currency Reserve Shift
Roosevelt transferred the power from the British pound by creating the new dollar.
The U.S. had 8,900 tonnes of gold of the circulating 29,000. In May 1933 Roosevelt backed the dollar by the amount of gold the U.S. had in reserves. This gave rise to the U.S. dollar as we knew it until 1975.
Periods of economic danger brought both risk and opportunities: $7,000 worth of gold at the beginning of the depression became $35,000 at the end of this period through the currency adjustment. The main beneficiaries were gold companies. An example: Homestake Mining. Investing $7,000 in their stock at the beginning of the depression would have given investors $85,000 plus 10% dividends by the end of the depression.
Jaime started investing in gold in 2006 after noticing central banks globally increasing the rate of printing money.
More than a gold bug, Jaime considers himself a debt bear. He’s concerned about the levels of debt we see at this time, similar to 1930s, but greater.
In 2006 gold had a great rise from $600 to $1800. The decline of the correlation between gold and money is seen as an opportunity. He believes this is due to manipulation within the gold future contracts by allowing the selling of paper contracts that are not backed by physical gold. As a game of musical chairs, you have less and less gold chairs but more people running around the chairs because they are buying the contracts that give them participation in gold.
In March 2020, the London Bullion market sold 32,000 tonnes of gold in paper contracts. This is the amount of gold held by all central banks. How can this be if that gold isn’t trading? It’s just paper trading.
This is where the biggest opportunity lies; gold has to catch up.
Like in the 1930s, today we are at 0% rates, which means we are again at a point of maximum utility; new debt does not equal economic growth.
Looking at the chart of Gold vs HUI, gold hit a bottom and started moving higher around 2015, however the producers saw a spike but then started going sideways. This has opened an opportunity to invest in producers, since they need to catch up to the price of gold. Central banks at zero rates will not be able to stimulate the economy. Gold needs to keep rising. Producers have started to spike but there is still a long way to catch up to gold prices.
HUI index in blue and Gold in yellow
Looking at the DOW vs Gold vs HUI
Investing $1 in the Dow, gold and HUI in October 1 2018, Dow would have yielded a negative return of 12%, gold up 46% and HUI up 92%. The bull market for gold has began but no one has noticed.
Look out for producing companies that are picking up projects and rebuilding old projects.
Have a good selection of producers and royalties on your foundation. There is very little risk there.
Four criteria for adding a producing company to your portfolio:
high reserves on the ground
low cost to production
geopolitically safe places
extra: those paying dividends
Flow through investment for this sector also makes sense.
Gold needs to rise a lot more to deal with the debt.
Last piece of advice: Have good positions and wait on them. As multimillionaire trader Jesse Livermore said “It never was my thinking that made big money for me. It was my sitting tight.”
Jaime is diversifying his equity income portfolio by putting 30% in precious metals.
This webcast was sponsored by
Evrim Resources is a gold explorer, and the company partnered with CORUM 2020 to show you why it's crucial to have gold explorers in this day and age. If you are interested in learning more about gold's use in technology and medicine, as well as other facts about metals in our society, I invite you to check the Evrim Blog.
Mark Stacey Head of Portfolio Management
AGF Investments Inc.
Mark is Senior Vice President, Co-Chief Investment Officer, and Head of Portfolio Management atAGFiQ Quantitative Investing, a quantitative investment platform powered by AGF. Mark began his career with AGF as part of the Highstreet Investment Management team and has been in the industry since 2002 applying quantitative and qualitative management techniques to the portfolio management process.
VP, Investment Advisor & Portfolio Manager at Canaccord Genuity Wealth Management
Jaime has garnered a reputation for questioning and challenging the status quo, and exploring the most innovative investment strategies. As a frequent contributor to the mainstream media (you may have seen him lately on the Market Call segment on BNN Bloomberg), Jaime offers a fresh perspective on the global, financial and geo-political landscape helping investors adapt to hidden opportunities and risks, and best position client portfolios to thrive early from volatility in the global system.