With the pandemic still raging, inflation surging and a destabilizing military exit by the U.S. from Afghanistan unfolding, the news this week that shadowy company Palantir was buying physical gold turned some heads. Should regular investors follow suit? The data company, known for its many government contracts, revealed in its earnings statement last week that it bought $50 million in gold bars this month as part of an investment strategy in nontraditional currencies. The secretive company told Bloomberg News that it was in preparation for future "black swan" events. That should come as a warning sign to investors, Goehring & Rozencwajg managing partner Leigh Goehring said. "Given what the company does and its huge ability to analyze big data and recognize trends, I think they're onto something," he said. Gold is often seen as a hedge against inflation and currency debasement, issues the Federal Reserve is facing as it seeks to dial back some of the monetary stimulus it has provided to the economy. But the metal hasn't caught on this year, even with the growing worries about inflation. Gold prices are down 6% in 2021, though they have perked up in the past week. Goehring said while the U.S. has inflation, it doesn't have inflationary psychology, where consumers tend to spend more quickly with the belief that prices are rising. He also said the economy is "set up perfectly" for a black swan event that could trigger inflationary psychology and lead to a sell-off in the bond market. 'There's a lot of fear' Leuthold Group chief investment strategist Jim Paulsen said Palantir's gold move is simply an indicator of the cultural mindset of the day. "We wouldn't normally see companies buying a lot of gold, but in a world of zero interest rates, with a monetary authority that has abused and overused their policy and with current runaway inflation, you even got them taking those bold steps," he said of Palantir. "I'm not so sure that bolsters the case that it's the right thing to do as much as it bolsters the case that there's a lot of fear. Underneath a bull market – it's up a lot, it just keeps going up – is a huge wall of worry." He also noted that the only time gold has ever been higher than it is now was in 2020. Paulsen added that while it's expensive compared with other commodities, it's still "where everyone's rushing." "It says something about emotion and fear, where your values don't really matter, you just want to feel protected when you go to sleep," he said. Institutional investors have time to increase commitments to the precious metal markets, Goehring said. The goal should be to trade within a corrective trading range period, and that there's a "little longer to go" on that. Similarly, Paulsen said there will be a market correction, and it's early in the economic expansion and bull market. He also said some good has come from the pandemic that could lead to an expanded recovery that may grow faster than it has in the past – even if it happens with higher inflation. Individual investors should use this period of price weakness to buy the dip on physical gold and silver, Goehring said. "If you're a retail investor this is probably 1999-2000," when the price of gold fell to a low of about $250, "and in 10 years gold will go significantly higher. It will not only protect you but it may wind up being an extraordinarily profitable investment." Bitcoin as a black swan hedge Other than gold, Palantir's investment strategy also includes start-ups, blank-check companies and potentially bitcoin , which the company has internally discussed investing in before. Palantir has also made bitcoin available to customers as a form of payment, Bloomberg reported this week. No one has taken them up on that offer, but that'd be unsurprising to many, as the cryptocurrency's digital gold narrative has strengthened over its lifetime while the digital cash narrative has dwindled. Paulsen said he's not convinced bitcoin is a hedge against a black swan event, but investors could certainly introduce it into their portfolio for diversification. Though he sees it as independent of stock market correlation, it could just as easily go down with the market (as it often has). "The biggest problem it has is no government of the world wants it because they'll lose control," Paulsen said. "I think we're going to overcome that because it's pretty well dispersed and the concept is perfect. There really is no reason in economic theory to have a currency that's artificially set by political bonds, yet that's what we do. The only reason we have currencies is because we have political boundaries, but in economic theory the optimal number of currencies to have in the world is one." Liquidity will improve and its best and worst trait, volatility, will go down, he added. "You could set up a systematic rule to exploit its amazing volatility with just fixed rules," he said. "I put a 1% or 2% position in the portfolio and if it goes up to 3% I trim 1% out. If it falls to 1% I put 1% back in. Over time, even if it's flat, I'm going to make money."
A worker lifts a gold bullion bar from a conveyor machine at the Rand Refinery plant in Germiston, South Africa, on Aug. 16. 2017.
Waldo Swiegers | Bloomberg | Getty Images
With the pandemic still raging, inflation surging and a destabilizing military exit by the U.S. from Afghanistan unfolding, the news this week that shadowy company Palantir was buying physical gold turned some heads.
Should regular investors follow suit?