The Hidden Hard Asset That Outshines Major Tech Companies

In recent years, shares of Apple, Nvidia, and Microsoft have skyrocketed as investors sought to capitalize on the growth of artificial intelligence (AI). These three tech giants have become so influential that their combined market capitalization has reached over $9.2 trillion as of March 25.

While these numbers are impressive, they are dwarfed by a hard asset that has been performing exceptionally well and, according to some analysts, might see its value soar to $40 trillion in the future. This asset is gold.

The Role of Gold in a Changing Economy

Historically, gold has had an inverse relationship with the value of the U.S. dollar. Many investors have been surprised to see gold prices surge even as the dollar has remained strong during a protracted bull market. Remarkably, the value of gold has outperformed the broader S&P 500 index and has now surpassed a market cap of $20 trillion.

Gold is often seen as a safe haven asset during times of economic uncertainty. Recently, concerns over the rising U.S. national debt—now exceeding $36 trillion—have heightened interest in gold. The fiscal deficit, which represents the gap between government spending and revenue, is projected to hit $1.83 trillion in fiscal 2024. The burden of interest payments on this debt now occupies about 13% of the federal budget, alarming many investors, particularly those holding U.S. Treasury bonds.

There is a growing fear that if the fiscal situation does not improve, investors may demand higher yields on Treasury bonds to offset the risks, potentially leading to negative consequences for the market.

Luke Gromen, founder of the market research firm Forest For the Trees, argues that the increasing sovereign debt, especially for the issuer of the global reserve currency, the United States, is a signal that investors need to reconsider their positions. As he discusses in a recent podcast, the inability of the U.S. to manage its debt without resorting to money printing raises serious questions about the viability of holding government bonds. Gromen believes this dynamic will drive gold prices up, independent of inflation.

Future Outlook for Gold

With a current market cap over $20 trillion, gold's price per ounce is approximately $3,040 as of late March. Gromen suggests that we are still in the early stages of a significant upward trend for gold. Previously, some analysts believed gold would never reach $3,000 per ounce, yet it has surpassed that threshold. He posits that the market can comfortably accommodate even higher prices, be it $4,000, $5,000, or $6,000 per ounce, with a $6,000 price point corresponding to a market cap around $40 trillion.

One compelling aspect of Gromen's analysis is the belief that the current U.S. policies favor a weaker dollar, which could indirectly boost gold prices.

While it's essential to note that recognizing the implications of the U.S. fiscal situation can be difficult for many, investors should consider how those in countries facing significant economic challenges view similar trends. For instance, those familiar with financial markets in Argentina or Brazil can easily interpret a coincidental rise in gold prices alongside climbing interest rates as a movement toward a debt crisis.

As the fiscal situation in the U.S. remains precarious, it may make sense for investors to consider allocating a portion of their portfolios to gold, ensuring some protection against worsening economic conditions or potential crises.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia.

Gold, Investment, Debt