Why I Own Gold Right Now, by Investor of $2.8 Billion
Alec Cutler, who runs the $2.8-billion Orbis Global Balanced fund, has revealed why he thinks now is a good time to be invested in gold.
Cutler has around 5% of Orbis’s funds in gold. “If you look at the different possible economic scenarios we are faced with now, the first is that we are all going to become like Japan, with no growth, and very low bond yields. Well, the number one reason not to own gold is that it pays no income, but in this scenario, bond yields are very low or negative so nothing pays an income, and that’s good for gold.’
“The second scenario people look at right now is that we end up like in the 1970s, with stagflation, very high inflation and very little growth,” said Cutler. “Well, in times of very high inflation, gold does well as a store of value. It did well the last time we had this scenario.”
There is also a risk, Cutler said, that people are underestimating geopolitical risk in the US, Russia and Europe. He feels that gold is a perfect asset in that kind of environment.
Cutler said that the current situation is ‘kind of goldilocks, with the economy neither too hot nor too cold, not ideal for gold, but when you look at the difference scenarios, two of the three are good for gold.’
“The last time we had a low gold price something changed in the market at the company level,” said Cutler. “The companies are no longer run by gold bugs, they are run by private equity guys and investment banks, and those guys care about things like profits and dividends. So when the gold price went from $1,000 to $1,200, in the past the gold bugs running these companies would have been about opening a new mine. The guys running the companies now said, well let’s pay down debt, and if there is cash left after that, then they pay a dividend, so that has led to a change, in terms of gold supply.”