In a recent interview with Kitco News, Peter Grosskopf, CEO of Sprott Inc., said that it is only a matter of time before general investors turn to gold to preserve their wealth as they lose confidence in global fiat currencies.
Grosskopf explained that gold is the only reliable global currency as countries continue to deal with unstainable debt. According to data from the Washington-based Institute of International Finance, total world debt is hovering near a record at $244 trillion, more than three times the size of the global economy.
For the U.S., in a report last month, the Congressional Budget Office warned that it sees U.S. debt growing by $12 trillion between 2020 and 2029 due to more government spending and weaker economic growth. That is on top of the current deficit of more than $16 trillion.
It’s only a matter of time before general investors see gold as a necessity,” said Grosskopf. “Gold will become a more fungible global currency as consumers lose confidence in the fiat system.”
Grosskopf explained that he sees really only two ways out of this current debt crisis, the first is to drive inflation higher through more easing and the second is financial repression; however, he added that both options ultimately lead to a weaker, debased currency, which will drive gold demand and prices higher.
In this environment, Grosskopf said that it is unlikely that major central banks like the Federal Reserve and the European Central Bank will be raising interest rates this year.
“Mathematically, raising interest rates with record debt levels don’t work,” he said. “The basic financial equation is broken and we see gold as an important hedge.”
Grosskopf said that his firm has seen growing interest in gold from a variety of new investors from large hedge funds to family-owned investment firms.
“We think the overall trend for gold is positive because it is being accumulated,” he said. “It’s being accumulated by central banks; it’s being accumulated by billionaires, it’s been accumulated by endowments and it’s more accepted as a class of currencies in portfolios.”
Further stress in the global economy will eventually drive the average investors back to gold, Grosskopf said. He added that evolving technology and the creation of new digital gold platforms are making physical gold more accessible to average investors and are also turning the yellow metal into a fungible currency.
“The bottom line is gold is a better currency than fiat currency,” he said. “Digital gold may not be mainstream yet but these platforms work perfectly and it will continue to grow.”
Last year, Sprott helped to launch Vaultchain Gold, a physically-backed digital marketplace, developed by Tradewind Markets. The new platform allows investors to buy fractional amounts of gold or silver on digital exchange with the physical gold stored in a vault at the Royal Canadian Mint. The transactions and ownership of the gold are recorded through blockchain technology.
The SPDR Gold Shares (GLD) was trading at $123.74 per share on Tuesday morning, up $0.14 (+0.11%). Year-to-date, GLD has gained 0.07%, versus a 3.02% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Kitco.