(Neils Christensen) The debate between gold and bitcoin, as to which is the ultimate safe-haven and inflation hedge, continued to rage this past week. However, I feel that the longer this debate goes on, the more investors are missing the bigger picture.
The stark reality is that there is more than $16 trillion worth of negative-yielding debt floating around the world right now. The U.S. government continues to move forward with its proposed $1.9 trillion stimulus package to support the U.S. economy. The Federal Reserve’s balance sheeting grows from record high to record high, pushing above $7.4 trillion.
The U.S. also isn’t in this boat alone; central banks around the world are maintaining extremely accommodative monetary policies and growing their balance sheets to record levels.
The threat of global currency debasement continues to rise, and the debate is no longer bitcoin or gold. Any alternative asset that will protect your wealth will become a necessity in every investment portfolio in a world with falling purchasing power.
But it’s not just investors that are starting to take notice of the growing threat in financial markets. Tesla made headlines worldwide after CEO Elon Musk announced that his company bought $1.5 billion worth of bitcoin. The EV company will now accept bitcoin as payment for their vehicles.
This was positive news for digital currencies, pushing bitcoin to new highs. However, there was a major gold component to their announcement that many investors have ignored. Tesla could also move some of its cash hoards into gold or gold-backed exchange-traded funds (ETFs). They are doing this because of the growing currency risk.
“We transact business globally in multiple currencies and have foreign currency risks related to our revenue, costs of revenue, operating expenses and localized subsidiary debt denominated in currencies other than the U.S. dollar,” the company said in its filing with the Securities Exchange Commission at the start of the week. “If we do not have fully offsetting revenues in these currencies and if the value of the U.S. dollar depreciates significantly against these currencies, our costs as measured in U.S. dollars as a percent of our revenues will correspondingly increase and our margins will suffer.”
This could be the spark that ignites the new dimension to the alternative monetary assets. Major companies are around the world are sitting on piles of cash, unknowingly taking on more and more currency risks.
But it wasn’t just Tesla that is looking to hedge their currency risk. Thursday, the Idaho State government made headlines as the House passed legislation that would allow it to diversify some of its treasury holdings into gold.
According to the bill, the proposed legislation would permit – but not require – the State Treasurer to hold some portion of state funds in physical gold and silver to help secure state assets against the risks of inflation and financial turmoil and/or to achieve capital gains as measured in Federal Reserve Notes.
The bill now moves to the state Senate for debate.
While I don’t want to take any sides in the debate because there is room for both bitcoin and gold to grow, the only point I would like to make is that many analysts note that gold does have a much longer track record as a proven safe-haven and is a lot less volatile than bitcoin.
The lower volatility alone is a major factor that will attract bigger, more conservative funds to the precious metal.
But to get back to the bigger picture, the inflation threat is real, and people are starting to take it seriously.
To wrap up, for everyone in B.C., Ontario and South of the Border, happy long weekend!