When we lay out the legitimate case for hard assets versus financial assets, inevitably the questions arise as to the timing. Our response to these questions is always consistent: We don’t know. We have spoken at length about the futility involved in forecasting, particularly forecasting the onset of such a significant secular shift. However, the constant communication and information flow of today places pressure on investors ,which in turn, many times causes them to  overestimate their  own timing instincts. We point out to people, that more emphasis should be placed on where one wants to position themselves rather than exactly when.  The emphasis should be placed on the how and where rather than the when. We also stress to investors that the information flow regarding the beginning of this secular shift will be subtle and almost completely anecdotal. We can attest that these comments  offer little comfort for most investors, as they find it difficult to wrap their minds around such “soft data”. Investors are much more comfortable pointing to an event, or series of events, as evidence of a shifting investment paradigm.  We are firmly not in this camp however, instead suggesting that the divergence in returns and flows towards hard assets, and away from financial assets, will take place in a more nuanced fashion.

Our declaration that hard assets will significantly outperform financial assets over the foreseeable future is purposefully vague, as to how to most optimally take advantage of this divergence. We hesitate to specifically point out investment targets because, quite frankly, we believe that the greatest returns will probably accrue to those areas which are currently overlooked.  While history is a good starting point when performing scenario analysis, the phrase “history does not repeat itself, but it does rhyme” should immediately spring to mind.  This mantra recognizes the similarity and dissimilarity, not only of markets but of market participants.  This becomes important when attempting to position oneself in anticipation of a particular forthcoming market environment. For example, the fact that gold has sometimes outperformed during periods of above average inflation does not necessarily mean that it will outperform some other physical metal which may have better underlying fundamentals.  Sometimes the structure that surrounds a particular asset is indicative of the degree of potential relative outperformance.  Perhaps, the fact that the individual investor has a number of ways to currently “play” the gold story is also a good indicator that the market might be simply revisiting their old inflation playbook.  Contrast this with some other smaller, non-exchange traded metals which essentially possess no speculative format which would allow investor participation. If we take as a given, the fact that all metals will benefit from an extended uptick in inflation, then the expected development of vehicles designed to allow investor involvement will only provide a tailwind for further price appreciation in some of the more obscure parts of the physical metals markets.