Is Gold A “Scary Place” To Make Money Right Now?

Admit it: if your first instinct on the economy is to buy gold, then you probably don’t have very bullish thoughts on the world economy. Gold’s role as an economic hedge—and a hedge against inflation—means that those who often buy a lot of gold don’t see a particularly sunny future on the horizon when it comes to economic forecasts.

That’s why you might call gold a scary place to make money. But if you believe in making money, then sometimes, you don’t mind taking on scary ideas sometimes in order to make the right investments.

Jim Grant, recently speaking to the 2016 Strategic Investment Conference, had some interesting things to say about gold as it relates to our current economic landscape. Here are some of the highlights:

• “I would characterize gold not so much as a hedge against monetary disorder but as an investment in it.” –In other words, he doesn’t believe that gold represents a protection against monetary problems, but as an outright bet that these monetary problems are going to take place. That sounds like a man who’s certain about the economic future.
• “People say gold is a hedge against Armageddon. No, no, Armageddon doesn’t happen mostly. But what we are in the midst of is monetary shenanigans. And I see no real chance of there being fewer of them, a great chance for being more of them. So I’m very bullish on this ancient competition for paper money.” –Like many, Grant sees that gold’s ancient role as a form of money is not going away any time soon, despite the policies of central banks. And while he doesn’t see a monetary “Armageddon,” he doesn’t believe that you need one to take place in order to make money off of gold.
• “Western central banks, to the extent that they are run by people who follow the educational path of Janet Yellen, Ben Bernanke…I think they have one view, which is that gold is a curiosity...” It’s hard to disagree with Grant here. Although there’s no doubt that there are many bright minds in control of the economy—to whatever extent you can control an economy—they seem to place the idea of gold or gold-backed currency as a relic of the past that has no relevance to today.

Is the Gold Market Controversial?

Goldman Sachs recently said that indicators are showing some controversy in the gold market—while gold prices have gone down, some gold ETFs have continued to perform well. This lends some additional intrigue to the idea that investing in gold may be a “scary” prospect, even if you’re not necessarily investing in gold bullion.

Wherever you stand on gold, it’s important to take all perspectives with a grain of salt. While gold may have shown some signs of slowing down in the middle of 2016, that doesn’t mean that it’s going to stay that way. And gold doesn’t have to be a “scary” thing—if you invest in it, it’s usually because you believe gold is actually a safety net, which in turn can make you feel better about the diversity in your portfolio.