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column, and I found myself wondering: Is gold really an e ective hedge in periods of risk?
Spoiler alert for those who would rather Google the article and wait for the author’s conclusion. For the rest of you I will cut to the end result, to which the author arrived after engaging in an objective as well as compelling analysis:
When I set out to do the analysis, my bias and expectation were to  nd that the putative relationship between gold and risk aversion was simply a myth. Yet the statistics appear to show a relationship, and anecdotal evidence supports the notion. Given the solid performance of a portfolio including gold and the chance that the comfort of owning some might prevent investors from panicking at the height of a crisis, I have to conclude that the notion of gold as a hedge against serious risk aversion is true.
The implication is that Ray Dalio, who is not only successful but arguably the most rational man in the room (and by that I mean any room) might be right in his  rm’s analysis. I am sincerely indebted to Mr. Crise for being willing to confess the unexpected outcome of his enquiry. Gold is so underappreciated at this moment that to mention
it with anything less than derision, even while acknowledging its attributes, can be a career-killer. I adore such dissonance, as it has
so often presaged great things for the markets we have targeted for capital allocation. Nonetheless, with investors  xated on short-term performance, I can feel the pain of those who do not have the luxury of a long-term approach, and thus cannot a ord to be as cavalier as I am about the timing of an investment when my end goal is to multiply the capital many times over. Put another way, I believe that I have been in this movie before.
In the early 1990s, when silver was trading at $3.50 per
ounce (down from the $50 high recorded during the Bunker Hunt episode), the prevailing sentiment was that silver was going to be disemboweled by the demise of silver halide  lm. Conventional wisdom was that it would fall in value to $2 per ounce. Being fresh o  the boat as a macro analyst, in my spare time I investigated this market and found it to be based on what I termed a myth. My analysis indeed suggested that, far from being slain by the demise of silver  lm, silver was going to shrug o  the advent of the digital camera. Rather than falling to $2, its price would move back to double digits and maybe even challenge the all-time highs in due course. So, driven by a giddy conviction about an emerging opportunity in silver, and being unable to identify a worthy asset to capitalize on the anticipated move,
I started my own company. Condensing a decade into a sentence, the team we assembled was able to discover a fabulously high-quality project – which today remains one of the world’s largest and lowest- cost silver and zinc producers. I’ve glibly made it sound a tad easier than it really was. But that about sums it up. I should add that silver did not go to $2, but in fact returned to $50 for a moment and, I suspect, will do so again. But that story is for another time.
I applied a similar strategy to an investment in the energy sector. In the early 2000s, when oil was trading below $20 per barrel and
the market’s view was that the price would fall to a normative $12-15 per barrel, my analytical stance was that oil could easily rise to $100
a barrel. To play this out, I created a new exploration company, Leor Energy, which I named after my two kids. Once again, we were able to identify a highly prospective asset and take it up the value chain. That asset was ultimately sold for more than $2.5 billion in 2007, when oil was trading well north of $100 per barrel. When we followed this act by pivoting to gold, it was trading at $650 an ounce or so. I should add that the dollar was trading at $1.45 to the euro. That’s worth noting. Oil was much higher than it is today. And the dollar is stronger. And yet gold has doubled. It makes one wonder about certain myths – such as gold being just a commodity and that it needs a weak dollar to do well. I would not belabor the point that in ation – which is often considered a prerequisite for strong gold prices – has not been in evidence this past decade. And yet gold has doubled.
I believe that our secret to realizing substantial returns from these two investments lies in the fact that we were able to identify a sector with fundamentals ripe for a major upside move, hitching our bets to the best vehicle of choice, partnering with the best management team in the business, and executing the strategy of taking the assets up the value chain to fully capitalize on the move in the sector. Our returns in silver and energy were more than 100 times our investment.
Now, we see gold through the same prism as we saw silver and energy: unloved by investors, yet with the potential to generate killer returns when a bullish sentiment returns to the sector. In gold, our vehicle of choice is NOVAGOLD, a company with two unique assets located in the best jurisdictions. It has a top-notch management team with an unparalleled track record of making things happen and doing them right. To us, NOVAGOLD is the right story at the right time. It represents a once-in-a-lifetime opportunity to make the very lowest- risk/highest-reward trade in gold. For as extraordinary as the assets were that we discovered or came to control over the last two decades, none was actually in our view unique. As a consequence, this vehicle has the potential to outperform them all.
To see why, let’s look at gold  rst. In his Fourth Quarter 2017

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