Tesla Signals Go To Gold? Could this be a new trend for companies sitting on a ton of money?
Bitcoin got all the attention after Tesla CEO Elon Musk announced a $ 1.5 billion investment in cryptocurrency. But there has been another major change in the company’s cash holding policy, and gold investors should take notice. Tesla on Monday not only announced that it is investing in bitcoins and accepting bitcoins as payment for its cars, it also said it could potentially invest in gold and exchange-traded products backed by gold.
We may invest some of that cash in certain alternative reserve assets, including digital assets, gold bullion, gold-traded funds and other assets to be identified in the future, the company said in a filing for the Securities Commission. securities and stock exchanges. The company said it is considering alternative assets as a hedge against rising foreign exchange risks in the market.
We do business in different currencies around the world, and we have foreign exchange risks associated with our revenues, revenue costs, operating expenses and localized subsidiary debt denominated in currencies other than the US dollar, the company said in a statement. If we do not have full offsetting revenue in these currencies and if the value of the US dollar declines significantly against these currencies, our costs, measured in US dollars as a percentage of our revenues, will increase accordingly and our margins will suffer.
William Kai, partner of Wilshire Phoenix, a company developing a new gold-backed ETF, said that while he doesn’t see Tesla hitting the gold market with both feet anytime soon, it’s an important example of how alternative assets are gaining further acceptance. in major markets.
Tsai added that with inflationary expectations rising, it should come as no surprise that a company like Tesla is trying to hedge some of its currency risks. He said this could trigger a new trend in the market. A lot of companies around the world are just sitting on a pile of money, he said. As we begin to see a decline in purchasing power, this cash position is not without risk. I don’t believe this will be a game changer for gold, but it adds another strong element of support to the market.
According to John Feeney, business development manager for Guardian Vaults, this kind of move can only happen in the face of current low interest rates. Low interest rates have completely changed the financial markets. Cash is thrown into anything, he told Kitco News. This does not happen at interest rates of 3% -4%. There is no incentive to keep cash and everyone is looking for alternatives, including Bitcoin and gold.
Cash is not bringing in anything right now, and people like Musk are looking for alternative assets, and gold is one of them. When you see someone like Musk, who is willing to pay some pretty big, risky bets, looks at the cash in his bank account and makes no money, he starts thinking of other alternatives. Now he has chosen Bitcoin. But it would be interesting to see if gold or silver goes into the mix, said Feeney.
Tsai noted that in a world where central banks are extremely flexible in monetary policy, gold continues to be an attractive safe haven. With bond yields like this, it makes sense to keep some gold as a hedge, he said. Elon Musk is a trendsetter and other companies are looking at him and some will probably find this new step a good idea. In an environment of low interest rates and falling purchasing power, companies will have to get creative to defend their capital.
Regarding the debate between gold and bitcoin, Tsai said that while both are important assets, cryptocurrencies are still too volatile to have the same appeal as gold. I think bitcoin can be a haven asset like gold, but it will take a little longer to get it approved, he said.
While Tesla’s investment in bitcoin pushed prices to a new high of over $ 48,000, Tsai said that he believes it is only a matter of time before gold prices hit a new high of over $ 2,000. Rising inflationary pressures will continue to be an important factor in the new rally in gold. However, Tsai noted that he sees other important catalysts in the market, including a potential correction in equity markets, renewed economic weakness as countries continue to grapple with the COVID-19 pandemic and a weakening US dollar.