Last week saw Palantir Technologies, a high-profile software company, buying $50 million worth of gold bullion. This didn’t get anywhere near as much attention as when Michael Saylor’s MicroStrategy bought Bitcoin—or when Tesla did—but it could prove more momentous.
Consider the logic:
“The move reflects a growing company stashing cash in an unconventional asset in response to economic uncertainty spurred by the coronavirus pandemic and governments’ response to it.”
In other words, ordinary business people who are not gold bugs are starting to think that a bit of hedging with history’s most enduring safe-haven asset—gold—is a sensible precaution.
In the face of the global financial system sailing off into truly uncharted waters, that’s no surprise at all.
If there is a surprise, it’s that it has taken this long to start…
But that assumes that a new trend has indeed started.
It may be that Palantir’s action is a one-off event, quickly forgotten. Or it may be that others have been thinking similarly, and now that a trend-setting company has broken the ice, more will make the same decision.
We’ll just have to see how this plays out.
But if Palantir’s action turns out to be a “MicroStrategy moment” for gold, the implications are huge.
As my friend Rick Rule likes to point out, the historical average global allocation to gold among financial assets as a safe haven is around 2%. The current global allocation is around 0.5%. If the allocation were simply to revert to its average in previous decades, it would imply a fourfold increase in demand for gold.
The impact of this on the gold-dollar exchange rate (aka “the price of gold”) would be, as I say, huge. And the leverage gold stocks typically provide over the metal itself would make for spectacular wealth creation… for those well positioned in advance.
There’s a big “if” in this reasoning, of course.
The trillion-dollar question is whether Palantir’s buy is evidence of a long-overdue turning point.
I don’t know the answer, and I don’t think any mere mortal can know.
But I do know that the reasoning behind Palantir’s action is sound. Given all the crazy things governments have done—and continue doing—in response to the COVID-19 situation, it makes sense to me for more companies to make this same prudent decision.
And it doesn’t have to be—arguably, shouldn’t be—with most of a company’s treasury, as MicroStrategy did.
A cautious allocation of just 2% to gold would provide some peace of mind… and completely change the gold market if it became part of the new normal.
A palantir, by the way, is a kind of crystal ball from J.R.R. Tolkien’s Lord of the Rings saga. A palantir could not only help its possessor see far-off lands, it could also offer glimpses of the future. Let’s hope this Palantir is showing us a true vision of what will be.
As for myself, I’m not going to make some grand prediction of that future. We need more datapoints like Palantir’s before we can even call a trend. But if this does become a solid trend, my portfolio is already positioned to benefit.
I hope yours is too.
P.S. If you want help with your portfolio, My Take can provide guidance on stocks you’re considering buying, selling, or holding. If you want to know what I’m doing with my own money, you’ll want to give The Independent Speculator a try.