Gold Shines in Storm of Paper Money

Focus: COMMODITIES

Michael J. Cuggino Image Michael J. Cuggino President and Portfolio Manager, Permanent Portfolio Family of Funds, Inc.

The precious metal benefits from aggressive printing by central banks, and bullion is safer than an ETF, says Michael J. Cuggino, president of Permanent Portfolio Family of Funds.

Well, gold is in the news a lot, and it can be very volatile. So why have a portion of your portfolio in gold even if you are a conservative investor? My guest today is Michael Cugguno to talk about the reasons behind that. So Michael, in a conservative fund, why have a portion in gold?

We use it as one asset class of many in a diversified strategy. So from our perspective, gold is a hedge against inflation, it is a hedge against the devaluation of paper currencies in this negative real short-term interest rate environment. It acts as an alternative currency, an alternative to sort of paper assets and assets more bent on growth than capital preservation or wealth preservation.

All right, do you make predictions about levels in gold? Is it important to you to say that gold is headed to $2,000 or gold is headed to $1,200? Do you make those kind of calculations?

Completely irrelevant, except for psychologically, maybe. I mean, the reality is that it is more an indicator of the current state of the health of monetary currency and paper currency around the world. So it’s not necessarily even a dollar issue per se.

But everybody else as well as the dollar—and in this environment we have had declining unit values of currency, we have had the world central banks flooding our various countries with money to guard against the deflationary issues of several years ago. And as a result, the unit value of that currency continues to decline.