In the face of both general economic uncertainty and specific fiscal and monetary policy initiatives that potentially threaten the stability of the dollar, interest in physical precious metals among American savers remains strong.
As the pandemic’s economic fallout was quickly spreading last summer, the New York Times detailed survey results that said roughly half of all Americans were seriously considering the addition of gold to their savings regime.
But what’s particularly interesting to me is the movement among U.S. states toward using gold and silver to shore up their own financial reserves. Recently, the Idaho State House passed – by a wide margin – a bill that would let the state treasurer there buy gold and silver. Elected officials in other states are officially bringing similar measures up for consideration.
And there’s more. One of the world’s most popular and innovative companies recently updated its corporate investment policy to reflect that excess cash could now be used to purchase gold bullion.
We know precious metals have been on the minds of many American savers for some time. That in itself is noteworthy, I believe, given the longstanding emphasis on mainstream paper assets in American financial culture. But I think what may be even more significant is the interest in metals now evidenced by some states and at least one iconic American corporation. Should gold and silver gain greater acceptance as go-to assets among state governments and industry, the implications for precious metals overall could be enormous.
Idaho Takes Big Step Toward Diversifying Reserve Funds With Gold
Just as more individuals seem to be giving gold and silver serious consideration as core assets, state governments and private industry are doing the same.
Among the most recent examples of this trend is the Idaho State House’s passage in February of House Bill 7 (HB7) – the Sound Money Reserves Act. Should HB7 become law, the state treasurer would be empowered to buy physical gold and silver as a way to help diversify Idaho’s “idle moneys.” After receiving overwhelming approval by a vote of 51-19 in the Idaho House of Representatives, the bill has moved over to the state senate for additional consideration.
Concerned about broad economic uncertainty and the potential consequences to Idaho’s reserve funds, bill co-sponsor Ron Nate is convinced of precious metals’ potential to mitigate risks to the state’s financial resources. In an appearance before the Idaho House State Affairs Committee, Nate said, “With new concerns about financial instability, it makes sense for investors, and it makes sense for states, to turn to real assets, especially in terms of precious metals, to protect their funds.”
But as I mentioned earlier, the effort among states to include precious metals among their core assets is not limited to Idaho. Some elected officials in South Carolina have the same idea, and would like to see the Palmetto State buy and store precious metals for the purpose of making investments and diversifying reserves. To that end, South Carolina Rep. Stewart Jones has formally put up for consideration House Joint Resolution 3379, which would establish a committee to determine the feasibility of creating a metals depository in which state-owned gold and silver would be kept. Two legislators in Tennessee have initiated a similar effort there, as well. Rep. Bud Hulsey and Sen. Paul Rose each have put forth separate bills that would require the state to formally consider the feasibility of commissioning a state metals depository.
And some states already are relying on precious metals to help keep their financial houses in order. Last summer, the Ohio Police & Fire Pension Fund (OP&F) formally approved a 5% allocation into gold. The move by OP&F made it the second major state pension fund – joining the Teacher Retirement System of Texas (TRS) – to designate gold an eligible portfolio asset. According to FXStreet, it’s expected that the Ohio and Texas pension funds could hold roughly $1 billion in gold at any one time.
Tesla Looks to Gold to Help “Further Diversify and Maximize Returns”
It’s not only U.S. states looking at gold as an eligible reserve asset. Tesla has decided physical gold may have a place in its corporate portfolio.
You may remember that Tesla made waves in its February Securities and Exchange Commission (SEC) 10-K filing in which it revealed the company had purchased $1.5 billion worth of bitcoin. In that same filing, Elon Musk’s company made clear that another prominent alternative asset could receive significant attention.
In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity. As part of the policy, which was duly approved by the Audit Committee of our Board of Directors, we may invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds, and other assets as specified in the future.
The mention of gold by Tesla in its most recent 10-K – along with the effort by states to make the yellow metal an eligible reserve asset – caught the attention of former portfolio manager and well-known independent precious metals analyst Peter Krauth. In a recent article for Streetwise Reports, Krauth suggested the movement among companies and state governments to own gold could lead to a day when holding gold goes from a mere portfolio option to essentially becoming a sort of fiduciary requirement.
“The winds of change are blowing,” Krauth wrote. “Pension, corporate and even government fund managers are looking for alternative reserve assets. Is it such a stretch to think one day it [owning gold] will be expected and considered prudent?”
Should Retirement Savers Emulate States’ Embrace of Gold?
The winds of change are blowing indeed. We have no way of knowing if they’ll change so much that gold will become as standard as cash and other popular paper assets. But the embrace of gold well above and beyond the level of individual savers telegraphs a great respect for the potential of precious metals that’s worthy of acknowledgement, in my view.
So does this renewed appreciation of gold by U.S. states – and Elon Musk – serve to validate physical precious metals for the general savings public? In my opinion, I don’t think retirement savers should run out and buy physical gold and silver simply because states are warming to it and Elon Musk seems to like it. At the same time, I do think it says something that entities with so much to lose in such a volatile economic environment as the one through we’re living presently seem to think there’s genuine value in diversifying their reserves with physical metals. For those who’ve been inclined historically to look past metals without giving them a second thought, the pro-gold activity on the part of Idaho, Ohio, Texas and others could be seen as more than a little noteworthy.