What If Gold Doesn’t Drop?

On days like these, everyone is selling everything, including gold stocks... but gold isn’t moving much. Yet, the typical narrative I hear is that if there’s a market crash ahead, gold will be sold off like everything else. 

But what if it doesn’t?

Let’s think this through. What typically happens in a crash? Everyone sells everything and goes into cash and other liquid assets. What are the typical cash and liquid assets for investors internationally? U.S. dollars, Swiss Francs, Yen etc. 

Traditionally, this has been the case. But we live in a different world today.

After the Russian invasion of Ukraine in 2022, I believe a large part of the world’s central banks, as well as high-net-worth individuals and families, don’t want to have too much exposure to these currencies. Their thought process is similar to what I consider when looking at Chinese or Hong Kong stocks.

Yes, there’s a lot of value there. Yes, I think the future is bright for China long-term. But I just can’t buy them because I believe there's a real, tangible risk that I won’t be allowed to own these stocks down the road. I don’t like saying this, but with the escalation in economic and geopolitical tensions between the West and China, Russia, and other affiliated countries, I just can’t bring myself to buy Chinese or Hong Kong stocks. I don’t want to end up in a situation like Western investors who were invested in the Russian stock market.

This same thought process is making U.S. Dollars, Euros, and other Western currencies difficult to buy for many central banks and high-net-worth individuals around the world. They presumably want diversification from their own currencies and to own internationally renowned safe-haven assets such as U.S. dollars, but now I think they are afraid of owning them. For them, I think gold is an obvious choice.

This is why I believe there’s a good chance gold won’t get sold off like everything else. I think it’s the preferred liquid, safe-haven asset for a large part of the world now, and if they sell other assets out of fear, it’s logical that they buy gold.

While I think it’s a fool’s errand to base investment decisions on short term movements in commodities, I believe the chances for gold are good in this new reality, which makes the value proposition of many gold equities even stronger. Many gold equities are already incredibly undervalued, even if gold prices drop significantly, and they have multiple ways to re-rate from here. If gold prices remain strong, not only could they perform well, but they could do extremely well.

I think investors and speculators are making a big mistake selling off gold equities on days like these in anticipation of a crash. I have personally made gold equities a large part of my portfolio, and I like my chances.

I recently wrote about Dundee Corporation, which has significant holdings in many gold companies, some of which I also own individually. I intend to write a short summary of the gold stocks I own and like the most, and I will publish it here next week.

Thanks for reading!

If you found this article valuable, please consider subscribing to our email list to receive similar articles regularly in your inbox.

Disclaimer: This article is for informational purposes only and does not constitute investing advice. Please consult with a qualified financial advisor before making any investment decisions.