A value investor’s reluctant case for gold
The U.S. dollar is the world's reserve currency for three reasons, all of which are cracking at once.
I, a value investor, find myself writing this account of why I am now supporting gold. Initially, I was indifferent to it, as it does not fit within my value framework. Unlike Microsoft or Caterpillar, gold has no cash flows or valuations based on revenue, margins, or capital expenditures. Instead, its value lies in its perceived worth as currency and a store of value. Its price is determined by what others are willing to pay for it.
However, what changed my perspective was the current state of the U.S. dollar. As the world's reserve currency since WWII, it has benefited from three factors: a large, steady, diverse economy, political stability, and military strength. However, these three pillars are now crumbling. The U.S. budget deficit is at 6%, with defense spending surpassing interest on debt.
Furthermore, the political landscape is unstable, with increasing threats from China, Iran, and Russia. Internal divisions and corruption further weaken our standing.
Despite these challenges, the U.S. still possesses the largest and most robust economy globally, with limited competitors. This is crucial. Europe faces similar economic and political issues, whereas China's economy lacks democracy, currency flexibility, and is challenging to assess. Switzerland, while an alternative, is too small to replace the dollar.
Given that capital seeking alternatives to the dollar has nowhere else to go, they inevitably turn to gold. Thus, I acknowledge that gold is just one component of my investment portfolio, not dominating my holdings.
Written by urgent.news from Fortune's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
