Messi and Gold: A Class Pairing

Gold discussion seems to bring out the worst in people. Hate it or love it; there are no fence sitters here.  Yet gold, we should remember is just another asset, one that should have its time and place in portfolios. Negative real interest rates, as all savvy investors should understand, implies that this time is now; and as a true diversifier – unlike broad commodity indices that in fact amplify overall risk – gold demands also its place in investors’ portfolios.  

 

The chart below shows how when real interest rates are negative, the subsequent return for gold has a huge bias to being positive.  We use inflation expectations to deflate the nominal rate as using year-over-year CPI, the conventional way, is inherently backwards looking, therefore this is inadequate for capturing investment decisions, which are based on expectations, not just recent history.

 

I would encourage you to read our January 2012 HindeSight Letter – The Myth of Commodity Diversification for more on this topic.

 

Recently, Lionel Messi, the renowned Argentine footballer received the Ballon d’Or, for the third year running, the ultimate soccer accolade for a man of only 24 years of age.  He has already equalled Michel Platini’s record.  Messi, who plays for FC Barcelona, will be on show tonight in the second leg of the Champions League semi-final against Chelsea FC.  He has scored 63 goals this season, on the back of 53 goals last season.  This leaves you in no doubt as to why Barcelona has won five La Liga titles and three Champions League titles.

 

Come every Saturday morning, you will find Josep Guardiola, the FC Barcelona manager, mulling over his team selection. Following a diet of Spanish churros and pungently strong coffee, Guardiola will get out his blank team sheet.  Pausing for at most a moment, he will write one word: Messi.  First name on the team sheet.  Always.

 

In this time of negative real rates, low growth and financial repression where high inflation is seen as the preferred option, you could do worse than make gold the first name on your investment ‘teamsheet’ and build your portfolio from there.

 

I am the co-founder and CEO of Hinde Capital.  The other co-founder and CFO is Mark Mahaffey.   He is an avid Chelsea fan, so for his sake let’s hope Messi has an off day.  He may well do, but over any year or any quarter he will show his class.  Today’s investors are questioning the class of gold. Talk of recovery has seeded these doubts.  Recovery or no recovery, gold will continue to perform possibly over the next quarter but certainly over the next few years.  For a simple overview of our thoughts please see Why Gold?.

 


Hinde Capital overseas Hinde Gold Fund, which was designed to be as divorced from the financial system as possible.  To learn more click here Why Hinde Gold Fund?

 


We would conclude:

 

To be labelled a gold bug once had negative connotations. Although I personally do not care for the term as it is associated with so many heated emotions; I would say you are not a gold bug if you own gold. You just recognise that it should always be part of your portfolio. Any investment class can perform well or poorly. Equities, bonds, property, cash, commodities, agriculture all have their periods in the sun. This is gold’s. Gold, like Messi, has enduring class. 

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