Palantir’s recent investment of $50 million in gold bars raised several eyebrows in the financial sector, but is it something retail investors should consider as a hedge against inflation?
First, it’s important to put Palantir’s investment in perspective.
“Palantir’s investment in gold was $50 million in gold bars, that’s just a little over 2% of their cash on hand. It’s not a hugely significant percentage,” said Steve Symington, lead advisor for 7Investing.com.
For everyday retail investors, investing in gold bars or gold bullion creates several challenges not inherent in other investments. “It’s more difficult to manage, store and retrieve in large quantities,” Symington said. You must also consider the long-term costs of storage and insurance.
However, some investors view gold as a “safe haven” against inflation since the price of gold tends to rise as the U.S. dollar falls. If you are looking for what Symington called “a classical hedge against inflation,” there are easier ways to invest in gold than trading bullion. Symington pointed out that ETFs or investments in gold mining companies on the stock exchange represent a more convenient way to invest.
“Gold ETFs mirror the performance of gold, while at the same time giving you more effective ways to manage your investment. It’s much more liquid and easier to trade,” he said.
However, overall, gold tends to underperform stocks over time and does not pay interest.
“The historical performance of gold relative to stocks in general, and crypto of late, has been somewhat underwhelming in my view,” Symington said.
Crypto as a Hedge Against Inflation
For those who can tolerate volatility, “the more prominent cryptocurrencies, namely Bitcoin and Ethereum, can serve as an interesting hedge,” Symington remarked.
He recommended dollar-cost-averaging your way into these investments until you’ve built a portfolio with the percentage of crypto you were striving for. When you dollar-cost average your investments, you spread out your purchases over time during market dips in order to smooth out your overall purchase price to achieve higher returns when the market rises.
Other Options to Hedge Against Inflation
Of course, in a market full of investment possibilities, gold and crypto aren’t your only choices. Symington recommended payment processing companies such as Mastercard and Square as good hedges against inflation.
“The businesses themselves are hedged against inflation,” he explained, “because the value of their take as a percent of the transaction remains consistent and will climb and fall along with the strength of the currencies [used in the purchase].”
Is Palantir’s Gold Purchase the Start of a Trend?
Although Palantir’s gold purchase attracted attention from experts and retail investors, alike, there’s a larger trend at play that could prove even more interesting. Palantir also recently invested in special purpose acquisition companies (SPACs) and, in May, announced it would take Bitcoin as payment, although the company hasn’t yet added crypto to its investment portfolio.
“It almost seems to me they are finding creative ways to put their cash to use,” Symington said. “I suspect this isn’t the last eyebrow-raising moment we’ll have for Palantir. It’s a fun trend to watch companies with relatively large cash piles finding ways to put it to work and, over the long-term, ensure the safety of the company’s capital.”
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