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Gold against future currency devaluations?

Hello everyone,

I recently read Dalio's opinion on the next paradigm shift (https://www.linkedin.com/pulse/paradigm-shifts-ray-dalio/https://www.cnbc.com/2019/07/17/ray-dalio-says-gold-will-be-a-top-investment-during-upcoming-paradigm-shift-for-global-markets.html), which long story short is about central banks having to monetize government deficits which will be required to meet all the expected liabilities, from pension to debt, leading to currency devaluation which will further squeeze real returns. In such an environment, gold (and perhaps inflation linked securities?) would perform best:

"So, the big question worth pondering at this time is which investments will perform well in a reflationary environment accompanied by large liabilities coming due and with significant internal conflict between capitalists and socialists, as well as external conflicts. It is also a good time to ask what will be the next-best currency or storehold of wealth to have when most reserve currency central bankers want to devalue their currencies in a fiat currency system."

Given this, what do you think about the likelihood of future monetization leading to currency devaluations in developed markets and should gold be considered as protection for such devaluations?

Thank you.

Dalio, like many, is confused about facts and logic.   Most central banks are not allowed to "monetize debt".   The idea that gold is a store of wealth is contradicted by it's behavior, which shows almost not correlation to real economic factors in large part because gold is not very valuable economically and is unlikely to ever be valuable economically.  Because it is not economically valuable its price is almost random.

Interest rates are low, not because of central banks, but because the demand for low risk assets is high.  Most government liabilities are not contractual liabilities, like private sector liabilities.   Governments can, and do, change their liabilities.  Things like Social Security and Medicare are relatively easy to change.  If the US reduces immigration Social Security and Medicare will be beyond what the reduced number of younger workers is willing to support and it will change (probably making payouts means tested).

The dollar is strong because demand for dollar denominated assets is high, especially US TSY securities, and the US stock markets are still considered transactionally robust and efficient.

The central banks of the worlds largest free market economies are very unlikely to monetize debt.

The Government can fund its debt two ways:  Taxes and Inflation.   They will choose a heavy dose of the latter.

This is essentially the form I think we will see in terms of “Monetization”.    As our governments borrow recklessly, the deflation they are trying to counter will be keeping a bid on Treasuries.   Once that bid is lost, The FED could potentially buy as many (or threaten to buy as many) treasuries as needed to put a cap on interest rates.

In that scenario they would be enabling the Monetization, not actually directly responsible for it.    Ultimately Congress is the group that will put the knock out punch on the value of money and credibility of our currency.

I think Physical Gold is the obvious choice here.   It is immune to property tax and a wealth tax.

I suppose Crypto Currencies could serve as a store of value and would appreciate considerably in US Dollar terms.

 

 

Any hard asset will do.  It doesn't have to be gold or crypto, those are just the easiest to acquire.