Protecting Your Portfolio During a Hyperinflationary Market Landscape

with guest David Garofalo #MakingBank S6E4

The global economy is experiencing high volatility and hyperinflationary patterns right now, similar in many ways to the economy in the early 1980’s after the oil embargo. And while even gold is traded relative to other currencies and interest rates, it’s the one currency humans can’t print or produce more of; it has to be mined, which makes it a stable and reliable way to protect your portfolio over time.  

David Garofalo has worked in various leadership capacities in the natural resource sector for over 30 years. He has served as CEO and President and Chairman of the Gold Royalty Corporation, and has also served as President and CEO of Goldcorp until its sale to Newmont Corporation in 2019. Prior to joining Goldcorp, he served as President and CEO and Director of Hudbay Minerals from 2010-2015, where he presided over the company’s emergence as a leading metals producer.  

During his interview on the Making Bank podcast, David explains in detail the current state of today’s “hyperinflationary” environment, and how you can protect and preserve your capital portfolio during such a time. He stresses the importance of having liquid assets in the gold and precious metals space, and shares his best advice to getting started in investing in gold and metals royalties. 

We’ve Been Here Before 

David explains the concept of quantitative easing and the impact it’s having on the metals industry, particularly in driving lower interest rates and how that’s stimulating the economy. David believes this quantitative easing and some of its ripple effects are responsible for driving up the costs of base metals across the board. This year, gold could be headed to a valuation of $3,000 an ounce, according to David, while today it sits somewhere around $1,800-$1,900 an ounce. 

To explain how he reached such a number, David draws comparisons to the hyperinflationary market landscape in 1981, which experienced similar cyclical highs and lows that today’s market faces as well. In 1981, the U.S. went through the oil embargo, and gold went through double-digit inflation until it was trading at a high of $850 an ounce. Accounting for today’s inflation, that would translate to about $3,000 an ounce. 

However, David goes on to explain that he believes the inflationary market environment we find ourselves in today is more extreme than it was in the 1970’s and 1980’s, because now it’s escalating on a global scale. There is a coordinated effort between all global central banks working to debase currencies, control interest rates, and print more and more currencies. Thus, we are spiraling into another hyperinflationary landscape. This is where gold and precious metals come in. 

Diversify and Protect Your Portfolio 

How do you protect your capital in uncertain times of market volatility? You definitely don’t want to stockpile it in a savings account, because during today’s era of hyperinflation, those savings yield an interest rate much lower than the rate of annual inflation. Inflation means that on a real basis, your returns actually run negative. In other words, those savings are being steadily eroded every day as the value depreciates, unable to keep up with the pace of inflation. 

Meanwhile, investing in gold is a relatively safe and low-risk option (depending on your preferred avenue of investment) because it’s the one currency that can’t be printed. David reminds listeners that gold has been “the one true currency” for the past 4,000 years.  

Invest in Gold and Precious Metals 

Whether you keep gold bars in a safe, take out ETFs physically backed by gold and silver, or invest in gold royalties, playing the gold and silver sectors is a great strategic move in protecting your capital while planning for future growth.  

David also reminds listeners that “no investment is too small.” Regardless of if you’re buying the physical or you’re buying royalty copies of the gold equities, investing in the gold sector adds meaningful and stable liquid investments to your portfolio. “It’s really about preserving and protecting your capital,” David says, more than it has to do with the size of the investment.  

Although, as a good rule of thumb, he does advise gold and precious metals make up 10-20% of your total portfolio. Especially in such a volatile equity market, a margin of at least 10% will give your capital a nice “life preserver” in these times of hyperinflation and uncertainty.