Dave Rosenberg, chief economist and strategist at Gluskin Sheff and Associates – one of Canada’s most renowned wealth management firms – thinks you should have gold in your investment portfolio, and here’s why.
Rosenberg, speaking with Kitco News, believes inflation will rise in the near future due to worldwide central banks such as the Federal Reserve and the European Central Bank no longer pushing policies that favor price stability. Instead, these banks are letting inflation run rampant in order to keep recovering economies above water.
Rosenberg says “Gold… as an inflation hedge does well during periods when policy rates are being held in negative territory in real terms, which [Federal Reserve chair] Janet Yellen seems to be foreshadowing.”
He continues, “You want to be careful about how much gold exposure you want to have, but you certainly want to have some as a buffer.” In other words, he advises that gold should not make up your entire portfolio but rather is a great diversifier for it.
Although the U.S. Labor Department said on April 15 that the consumer price index (CPI) increased 1.7% in March, below the Fed’s inflation target of 2.0%, Rosenberg thinks higher commodity prices, higher hourly wages, rising rent costs, and rising healthcare costs will all translate to higher inflation.
Rosenberg adds that although he does not see inflation and interest rates reaching double-digits anytime soon, he sees signs that prices have hit a bottom and therefore will be on the rise. He recommends investors go against central banks that are trying to promote growth by staving off deflation. He believes investors “should put down the bet that the central bank will be successful in creating a moderately higher inflationary environment.”
In addition to higher inflation being on the horizon (if Rosenberg’s predictions are accurate), gold is currently selling at lower prices, making now a good time to buy in terms of price and making timely precautionary measures. Historically, gold prices have a positive correlation with inflation rates, so a hike in inflation will mostly likely mean the value of your gold will increase after you purchase it. Gold has intrinsic value and cannot be printed, unlike the U.S. dollar. An example of the declining value of the dollar vs. gold can be found in our Gold IRA infographic, which shows that $100 invested in U.S. dollars would buy you $100 worth of groceries in the year 2000, but by 2013 would buy you only $82 worth of groceries. On the other hand, $100 of gold purchased in 2000 would buy you $470 worth of groceries in 2013.