Investment

Sovereign reserves are moving towards commodities, led by gold – family offices should consider a similar move

It is hard to discern the grinding of gears in macro-economic strategies over the noise of gunfire in Ukraine. The only certainty is future uncertainty.

But influential investment strategist Lyn Alden, an adviser to family offices, expects a pronounced shift in sovereign reserves towards commodities, led by gold.

Alden says the unprecedented freeze on assets held in the US, but owned by Russia’s central bank, will fuel great uneasiness elsewhere.

Rather than growth stocks, she says investors should own resilient companies in healthcare, consumer staples and energy infrastructure. She likes commodity producers, gold and bitcoin, given that fiat money supply is expanding at a double-digit rate, with interest rates lower than inflation. 

Apart from military action in Ukraine, Alden says the unprecedented freeze on assets held in the US, but owned by Russia’s central bank, will fuel great uneasiness elsewhere.

Other central banks and sovereign funds particularly in emerging markets, will be wary of future sanctions on their listed assets where they are managed abroad. In contrast, neutral assets, held locally, cannot be sanctioned or frozen.

Alden says: “If sovereign reserves are easily freezable, this may spur central banks to re-evaluate their reserves and shift more towards gold while also focusing on maintaining larger commodity inventories.” 

Europe has cooperated with the US. Even Switzerland has joined in and agreed to sanction Russian oligarchs, which hold assets in Swiss banks worth $213 billion, according to the Swiss Bankers Association. But this move has robbed the Swiss franc of its neutral status as a safe haven.

Alden expects to see asset diversification across more currency zones and payment systems, as we move into a multi-polar world with trust in short supply. 

Credit Suisse’s top short-term rates strategist Zoltan Pozna has gone further, and argued that US sanctions will undermine the Bretton Woods system which holds together the current monetary system.  He expects commodity-based currencies in the East to gain strength and contribute to inflationary forces in the West.

Alden advises institutions, wealthy investors and family offices through her own firm, Lyn Alden Investment Strategy.  Homeless as a child, she became an electrical engineer and later a strategist.

Current developments mark a contrast with recent decades of low tariffs, cheap labour, lean manufacturing, new technology and globalisation which pushed interest rates to new lows and smoothed over cross-border tensions. 

According to Alden: “Companies basically traded away resilience in favour of efficiency while pretending there was minimal downside. This kind of approach only works under a benign global environment.”

Venture capitalists demonstrated optimism and a willing audience in a “stars-aligned macro environment.” Growth stocks surged.

The system initially withstood rising debt, job shortages and immigration and voter discontent.  But Brexit, Trump, Covid 19 and climate change added to its stresses and strains. Then 2022 brought war. Alden says: “A highly-levered and fragile system is not designed for such shocks.”

Now we finally see the importance of resilience: “The world is looking at the need to duplicate many parts of the supply chain, find and develop potentially redundant sources of commodities, hold higher inventories and, in general, boost resilience at the expense of efficiency.” 

As it happens, this way of life is familiar to family businesses, who tend to think twice before making decisions, to protect the financial position of their dynasties. Their stocks tend to outperform in down markets. 

According to French consultant Edhec: “Resilience is a process that notably results from exposure to threats or adversity. It encourages adaptation of the organization over time. Family-controlled businesses are often the most resilient in all respects.”

Commodities are central to current concerns because we can no longer access them so easily through global supply chains. We no longer buy wheat and nickel from Russia. We can no longer rely on shipping and manufacturing from China.  How long can we rely on Brazil for soybeans? Or Chile for copper?

Commodities are also rising in price due to a lack of investment in mining during the years of plenty. 

Alden concludes commodity prices will remain at elevated levels for years. Gold remains attractive: central banks were keen buyers, well before Ukraine. Bitcoin has been volatile but offers an alternative to fiat money’s increasingly uncertain prospects. 

Subscribe

You will need a Premium Plus Subscription to access this database.

Exclusive news, analysis and research on global family enterprise and private investment offices.

Access to the most comprehensive fully interactive database on global family offices, principal investment offices, and family enterprises.

Check Deal Data, Senior Staff, and New Analysis on more than 1000 family/principal investment and holding groups

Already have an account? Login

Subscribe

You need at least a Premium Subscription to read this article.

The most comprehensive information service on the global family enterprise world, featuring exclusive news, analysis, research and data on global family enterprises, family offices, and private investment offices.

Premium

£299

per year

  • Exclusive reports, analysis and commentary
  • Exclusive access to family/private investment office deal information
  • Exclusive interviews with principals and senior management of family/investment offices
SUBSCRIBE NOW

Premium+

£399

per year

  • Access to All of Premium
  • Access to all of FamilyCapital Analytics, our interactive database with more than 1000 detailed profiles of family investment groups

More Info

SUBSCRIBE NOW

Already have an account? Login

You've reached the end.

Continue reading free articles by registering as a Member.
Or choose a Premium Plan.

Membership

Free

  • Exclusive reports, analysis and commentary
REGISTER NOW

Premium

£299

per year

  • Exclusive reports, analysis and commentary
  • Exclusive access to family/private investment office deal information
  • Exclusive interviews with principals and senior management of family/investment offices
SUBSCRIBE NOW

Premium+

£399

per year

  • Access to All of Premium
  • Access to all of FamilyCapital Analytics, our interactive database with more than 500 detailed profiles of family investment groups

More Info

SUBSCRIBE NOW

Already have an account? Login

Leave a Reply