Mackenzie Minute: July 22, 2016
Onno Rutten, Vice President on the Mackenzie Resource Team, recaps the latest developments in gold in the wake of Brexit, how it provides "insurance" for investors' portfolios and the potential for dramatic shifts in government stimulus policies.
Gold equities rallied by 20% following the dramatic outcome of the Brexit referendum in an acknowledgement that political risks are increasing globally. This came on top of a 25% increase in gold prices year-to-date in response to concern about the monetary system, in particular, with bond markets globally, starting to trade at negative interest rates.
What we're looking for is a dramatic shift in stimulus policies by governments in response to fragile growth globally. The big shift would be to go from monetary stimulus to fiscal stimulus. We could see a $200 billion Helicopter Money program in Japan being implemented soon where the Central Bank funds the government in implementing a $200 billion Infrastructure Improvement program. This would increase the benefits of stimulus to the average voter in these countries. Governments are under increasing pressure to show improved benefits of stimulus towards their voters.
If governments would break the last taboo and start printing money for fiscal stimulus programs, gold would be up and it would be beneficial for Mackenzie Bullion Class and Mackenzie Precious Metals Class. But, rather than forecasting the near-term gold price, what we at Mackenzie argue for is an allocation of 5% to 10% of gold in any financial portfolio as a measure of risk diversification, as a measure of insurance. And, insurance is currently available. You don't buy insurance when your basement is flooded. You buy insurance when you haven't made any claims for a while. This is that moment.