Own Hard Assets In War and Peace

Dear Reader,

The skeptics said that this couldn’t happen. Rising government bond yields were supposed to be bad for hard assets, right? What they didn’t expect was a perfect storm of economic and geopolitical events that would boost the gold price even as interest rates soared.
 
With the 10-year U.S. Treasury bond yield recently touching 2.5% after the first interest rate hike since 2018, the pundits were bracing for a gold swoon. They forgot a basic principle of investing, though: if you want to know how every other asset class will perform, watch the dollar.
 
It’s the almighty dollar impacting the global markets, but it has struggled in 2022 so far. Fiat money in general – and particularly the dollar and the Russian ruble – has been losing its purchasing power for months now.

Major Sign of the Times… 

In the midst of a geopolitical crisis, fiat money’s weaknesses are quickly being exposed, and gold’s enduring value is on full display. Pavel Zavalny, the head of the Russian parliament, recently said, “The dollar ceases to be a means of payment for us, it has lost all interest for us.” Zavalny further called the U.S. dollar no better than “candy wrappers.”
 
Then, Zavalny declared that if other countries want to buy oil, gas, other resources, or anything else from Russia, “Let them pay either in hard currency, and this is gold for us, or pay as it is convenient for us, this is the national currency.”
 
We’ve literally heard the head of the Russian parliament just called gold – not the ruble – the country’s national currency. He didn’t mean this literally, but Zavalny’s point is duly noted: bullion has a remarkable ability to retain its value, particularly during times of crisis.

Gold isn’t just a crisis hedge, however. It’s also a growth asset that rewards patient investors and is technically poised for a follow-through rally since it recently broke out of its multi-month range and tested the important $2,000 resistance level.
 
Some folks were disappointed when gold pulled back from $2,000, but we have to understand how resistance levels work. It’s normal for an asset to test a level multiple times before a high-volume breakout occurs, and then the asset is likely to move quickly to the upside so it can test the next level.
 
Zavalny also suggested that Russia might switch from U.S. dollars to Bitcoin for international trade. This makes perfect sense since Bitcoin was designed to be decentralized, borderless, and immune to the impact of fiat inflation.
 
There’s a discernible pattern here as anti-inflation assets like gold, silver, and Bitcoin are getting more attention from hedge funds, retail investors, and even central banks. They’re increasingly waking up to what I’ve been saying all along: the markets aren’t prepared for an inflationary shock, so diversifying away from government money is a must.
 
Now, the chickens are coming home to roost after the government printed and spent more dollars in the months following the COVID-19 crisis than it had in the years prior. The nearly 8% CPI print might have been a surprise to the mainstream media pundits, but it was inevitable, and the next inflation figure is expected to be even higher than that.

This is bad news for the consumer, and we’ve all seen the results at the gas pump with a gallon costing $5 or more in some places. Some experts have pointed out that high inflation, and particularly high oil prices, tend to accompany economic recessions. 

Hard asset investors including those that own Bitcoin and other top cryptos are getting prepared, and it’s evident in the price action of Bitcoin. It’s not an accident that Bitcoin is heading quickly toward the significant $50,000 level as traders at the retail and institutional levels (and governments, as Zavalny revealed) turn to crypto for protection and growth.

There is a peace in having your game plan in place and just waiting out the volatility and the events that will impact your portfolios.It just goes to show that you don’t have to lose sleep over your portfolio’s performance when consumer prices surge or geopolitical turmoil strikes if you’re properly allocated. As cash gets trashed and bond prices crater, it is my belief you can not only maintain your wealth but build it rapidly and sustainably for the long run.

Ace Bauer
Chief Editor, SmartMoneyResults.com