The Case for Gold Today


Given what he calls strong supporting macro tail-winds, corporate finance columnist Les Nemethy looks at the case for investing in gold, the “ultimate monetary insurance.”

The last time I recommended gold as an investment was in April 2020, at which time it traded below USD 1,700. By August, it ran up to over USD 2,060. Since then, gold has gone through what, in my opinion, was a temporary correction, and has been trading again in the low USD 1,700s. As of the date of this article, gold is again showing some momentum, recently closing at USD 1,777. While there are never any guarantees on future performance, it appears that gold is once again well positioned for a breakout. The reasons supporting this are set out below.

In an environment of virtually every asset inflating, gold has been left out. Indeed, over the past decade, gold has performed poorly as an asset class. It has also recently been left behind by most commodities:

In a market where high-flying tech stocks sell for 100-200x earnings and even more pedestrian publicly listed companies are selling in the range of 30x earnings, it is refreshing to find gold mines for as low as 4-5x earnings.

Golden Decade

When gold performs, it can do so spectacularly well. Gold moved from USD 243 in December 1970 to USD 1,820 in January 1980, and from USD 401 in April 2001 to USD 2,044 in November 2011, according to; that is five or six fold moves over the course of a decade. Are we set for another golden decade?

There are strong macro tailwinds supporting gold. The majority of developed countries are engaged in both printing money and deficit spending on an unprecedented scale. In a past article, I explained how this is likely to result in inflation (see “What’s in our Future, Inflation or Deflation?”, December 26, 2020).

The magnitude of deficits today far surpass those of the 2008-2009 recession. Fiscal stimulus direct to consumers also distinguishes the current situation from 2008-9, increasing the chances of prolonged inflation.

The price of gold correlates inversely with real interest rates. Global debt exceeds 350% of GDP. Rising interest rates are likely to trigger yield curve control (e.g. governments buy bonds across various maturities to keep interest rates low across a broad spectrum of the yield curve). This will help governments, individuals and corporations manage the interest costs of unprecedented debt levels. Yield curve control would result in very negative real interest rates, providing huge impetus for gold to rise.

Many claim that bitcoin diminishes the appetite for gold. I see a different trend: As cash is displaced by digital currencies and bitcoin, gold will be the only way to stay “off grid” and maintain privacy and anonymity. This desire will increase if governments use digital currency as policy instruments (e.g. putting expiry dates on digital currency, or making it spendable only on certain types of goods).

Gold has a low correlation to equities and most other asset classes. The World Gold Council suggests that keeping 4-5% of an investment portfolio in gold creates an excellent hedge, (e.g. portfolio return is augmented for a given degree of risk).

‘Crack up Boom’

A number of economists are predicting a “crack up boom,” where money printing and deficits lead to a rapid inflation, complete loss of confidence in fiat currencies and eventual currency collapse.

“In any monetary reset, countries will come together and sit around the table,” James Rickards, the editor of the “Strategic Intelligence” financial newsletter, explains in his 2016 book “The New Case for Gold.”

“One can think of that meeting as a poker game. When you sit down at the poker table, you want a big pile of chips. Gold functions like a pile of poker chips in this context. This doesn’t mean that the world automatically goes to a gold standard. It does mean that your voice at the table is going to be a function of the size of your gold hoard,” Rickards adds.

If major central banks, the largest holders of gold, would revalue and make a market for gold at say USD 50,000/oz, most countries would have sufficient gold reserves to collateralize national debt. This would be the simplest and most elegant solution to the world’s debt crisis. 

In conclusion, gold is the ultimate monetary insurance. There are some valid reasons for holding up to 5% of your portfolio in gold. Since global gold holdings are a small fraction of bond and equity holdings, even a small shift towards gold could have a large impact on price.

Disclaimer: This article is not to be construed as investment advice. Readers are advised to perform their own due diligence. The author owns positions in physical gold, ETF’s and gold-related equities.

Les Nemethy is CEO of Euro-Phoenix Financial Advisers Ltd. (, a Central European corporate finance firm. A former World Banker, he is author of Business Exit Planning ( and a past president of the American Chamber of Commerce in Hungary.

This article was first published in the Budapest Business Journal print issue of  April 23, 2021.

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