We have interviewed several fund managers asking them about the biggest issues they are facing at the moment. Here's what Sequoia Asset Management's Loic Schmid told us.
Name: Loic Schmid
Role: Head of portfolio management, Sequoia Asset Management
Gold is the only currency one cannot print, and all other currencies are being printed to excess. Because of this, gold could soon become a rising star once again.
There’s no yield in gold, and for the time being everybody’s looking for yield – I think gold has been forgotten partly because of that. Also, a lot of people lost money when gold went from $1,900 back to $1,200, leading many people to remain underweight.
However, at some point allocations could start to go back into gold, and I’ve seen some big companies trying to put money to work with gold again. But should you buy it, and if so against which currency? Should you buy against dollars, against euros, against Swiss francs?
Most people put gold into the commodity space but it’s not a commodity, it’s clearly a currency. Although wage inflation is not on the agenda for the time being in what’s more of a deflationary than an inflationary environment, once the tide begins to turn I think gold could become a really nice story once again.
The investment case
For more than three years gold has been a poor performer, especially in US dollar terms due essentially to the fall in real interest rates. In addition, gold seems to be experiencing a typical cyclical bear market in a secular bull trend.
As a result, the current popular trade among smart investors has been long central banks’ monetary policies, short gold. Long central banks means riding the artificial bull market in equities and getting some carry on European sovereign debt. Short gold means either literally shorting gold, or simply not having any exposure to the only currency that cannot be printed.
However, the US has created so much debt that they will inevitably have to find a solution to unwind it all. Some ideas: a huge USD debasement, unlimited QE programmes (until the financial system collapses), or simply hoping for hyperinflation to wipe out the debt. Consequently, gold prices – especially in dollar terms – could surge.
My advice: do not buy gold to become rich, buy gold to stay rich!
An allocation of 5-10% in physical gold, coins if possible, should keep investors afloat in case of a total loss of confidence in Yellen & Co Capital. As a reminder, gold in Ukrainian Hryvnia surged three times this winter on the back of Ukraine’s currency devaluation and hyperinflation. I wouldn’t be surprised to see gold top $5,000 in the next few years, so dips should be bought.