By John McDonald
The world’s richest people are stockpiling gold as a hedge against global recession and insulation against wealth tax policies.
Political uncertainty, global economic volatility, and general concern over tax policies that involve heavy taxes on the wealthy have the richest people in the world stockpiling gold as 2019 draws to a close.
The price of the yellow metal is up nearly 20 percent since the beginning of the year and could go as high as $1,600 per ounce by 2020, Goldman Sachs analysts said.
Sabine Schels, a Goldman Sachs analyst, predicted that gold would respond to “the wealth effect” in 2020 by rising about 4.6 percent in the coming years. At present, gold is trading around $1,465 per ounce.
“Political risks, in our view, help explain this because if an individual is trying to minimize the risk of sanctions or wealth taxes, then buying physical gold bars and storing them in a vault where it is more difficult for governments to reach them makes sense,” Schels and her team wrote in a note released in early December.
Wealthy individuals’ concerns about tax policies are unlikely to be alleviated in the coming year, the team added.
“High political uncertainty due to continued trade tensions and the approaching U.S. elections should also be supportive [of] gold in 2020,” they said.
Two candidates, in particular, represent a threat to the wealth of the world’s richest individuals, many of whom reside in the United States and pay U.S. taxes.
Senators Bernie Sanders and Elizabeth Warren, both democrat presidential candidates with strong and vocal followings, have both been unabashed in their determination to redistribute wealth concentrated at the high end of the net-worth spectrum.
In fact, Sanders recently called for a tax of 1 percent on couples worth $32 million or more and an 8 percent tax on those worth $10 billion or more.
Warren suggested an additional tax of 2 percent on individuals worth $50 million or more and a 6 percent tax on those worth $1 billion or more.
In response, Microsoft founder Bill Gates, who has long described himself as in favor of “progressive taxation,” warned Warren that although he is “fine” with paying as much as $20 billion in taxes (in fact, he has paid more than $10 billion to date), he is hesitant to endorse policies that might lead to him paying $100 billion or more.
Gates made headlines with his off-the-cuff comment, “When you say I should pay $100 billion, Okay, then I’m starting to do a little math about what I have leftover.”
Warren responded with an offer to meet with Gates personally to explain “exactly how much” he would pay under her plan and promising “it’s not $100 billion,” but the offer did little to reduce worries many wealthy Americans are developing about the results of the 2020 presidential election.
UBS Wealth reported in November that more than 3,400 high-net-worth individuals expect a significant market sell-off by the end of 2020, likely in response to political uncertainty and election results.
That type of uncertainty is exactly the type of environment in which the yellow metal thrives as investors begin hoarding precious metals and other commodities.
“Geopolitical uncertainty is already translating into greater demand,” the Goldman Sachs team concluded. That uncertainty – and the demand – are both likely to continue rising as 2019 ends and 2020 begins.