Interview with the CEO of Noble Gold Investments: Gold as a hedge against inflation?

Zimbabwe’s central bank launched gold coins in July as part of efforts to curb rising inflation amid a slide in the country’s currency. The move sparked interest in whether gold could serve as a safe-haven investment during a market crisis.

Based on Zimbabwe’s developments, Blockchain.News recently had a conversation with Collin Plume, President and CEO of Noble Gold Investments, regarding whether gold can be a safe haven investment that investors should rely on in turbulent times.

The global pandemic that has raged for over two years has created unemployment, supply chain problems and more that have disrupted economic growth. With the increase in inflation, the US dollar has lost its value and purchasing power. But on the other hand, gold has increased its purchasing power because its value tends to rise with the price of goods.

In light of pandemic concerns, mounting debt, market downturns, business failures, and increasing inflationary realities regarding economic policy emerging from central banks and other regulators, investors have appeared to rush to invest in gold to hedge their financial positions.

Meanwhile, several crypto companies are facing bankruptcy, while many technology firms (such as Klarna, ClickUp, Lacework, Bolt, PayPalamong others) have recently announced massive layoffs. But questions remain about how investors can protect themselves against the risks of the ongoing financial crisis.

In the current times of financial instability and turmoil, investors are seeking opportunities to protect their assets and values.

Inflation protection

When asked if gold is a good investment, Plume answered YES. Although this can be demonstrated by Zimbabwe’s recent gold adoption, gold is generally seen as the ideal hedge against inflation. This is because fiat currency loses its purchasing power when things become more expensive, but gold tends to be priced in these currency units.

Plume explained: “Although the gold market cannot do anything about economic inflation at the macro level, it is easily the best hedge against inflation for an individual’s investment portfolio”.

Today, gold’s use and demand for physical gold has increased. According to Plume, “Gold’s industrial applications are growing steadily (gold is used in electronics, cars, biotechnology and even on Mars) while the global supply is rapidly shrinking, so its value is sure to increase over time.”

Geopolitical and economic instability

Gold also provides investors with a safe haven during economic and political instability. The precious metal has often taken on the role of an inflation hedge and a portfolio stabilizer during turbulent financial markets.

The gold market rose above the $2,000 per ounce level in March for the first time since August 2020, in response to Russia’s invasion of Ukraine in late February. Geopolitical uncertainty has increased the attractiveness of the precious metal for investors seeking a safe haven for their funds.

Prices have since retreated, falling about 6% so far this year, and have struggled to regain ground above the $1,800 an ounce level where they started the year.

This year, gold is getting investors’ attention after Russia’s invasion of Ukraine. Sanctions against Russia have already sent commodities markets into a tailspin, fueling concerns about stagflation – a combination of high inflation and slow economic growth – both of which are positive for gold.

In July, Zimbabwe’s central bank began selling gold coins to the public to protect people’s savings against the country’s ongoing inflation and offer an alternative to the widely used US dollar.

Zimbabwe still remembers the country’s economic collapse under the late Robert Mugabe, who ruled for nearly four decades.

Hyperinflation forced the nation to abandon the Zimbabwean dollar in 2009, choosing instead to use foreign currency, mainly the US dollar. During the worst of the crisis, the government stopped publishing official inflation figures, but current statistics put the inflation rate at 89.7%.

Gold tokenization

Despite the fact that physical assets such as gold, silver among others have weathered countless economic storms throughout history, gold may still need alternative trading platforms to help democratize access to gold using modern technology through tokenization.

Investing in physical gold has many advantages, but it has some disadvantages. The main challenges that investors face when investing in physical gold are issues related to availability, storage, security and the ability to resell on a regulated market.

Although gold is considered a safe bet, buying it is often a challenge for retail investors. For example, the average person would have to pay the costs associated with gold acquisition, rely on an intermediary and have a storage solution.

In recent years, the tension has been around cryptocurrency has attracted precious metal buyers away from their traditional investments as they dipped their toes into the crypto pool. But with the recent crash in the digital asset market, that seems to be changing. Many investors are returning to gold to tame the prevailing economic winds in the crypto markets.

Still, cryptocurrency like Bitcoin is in for a rough year due to the recent market crash. Major cryptocurrencies, including Bitcoin and Ethereum, have fallen, triggered by inflation and the Fed’s interest rate hikes.

In the long term, blockchain technology is increasingly being used to address all these limitations in today’s internet era. Blockchain enabling tokenization of gold and other commodities. The technology allows users to invest in digital gold, and therefore helps solve various problems related to physical gold ownership.

Gold as a key portfolio for investments

Gold’s performance moves independently and has low correlation with other assets such as shares, property, commodities, bonds. The precious metal can therefore help serve as a yield diversifier within a broader portfolio of multiple assets.

Therefore, based on the above analysis, gold is a good investment that investors can use to hedge and diversify their portfolios. However, according to Plume: “Some people think gold is only for older investors, or they don’t understand its uses. Many bullish investors focus on the hottest, newest assets, and while gold may not offer the same appreciations as Tesla or crypto, it also doesn’t offer the same risk of loss that they do.”

Investors are advised to hold around 5-10% of their portfolio’s value in some form of gold, either physical bars and coins, or digital coins, or instruments such as gold ETFs (exchange-traded funds), to diversify their holdings and potentially hedge against crashes in the value of cryptocurrency, stocks and bonds.

Gold perfectly aligns with the investment mantra of “don’t put all your eggs in one basket” – providing a safety net against events that could depress the value of popular investments like cryptocurrency and stocks.

“Like any good financial advisor, we strongly recommend using gold to diversify your portfolio. Gold is a low-risk, easily accessible wealth-building tool that can balance out the volatility of other investments such as technology stocks or cryptocurrency. It provides the best returns when held for longer time, but many younger investors just don’t know about it yet!” said Plume.

Image source: Noble Gold Investments