Gold Is In A Once In A Generation Bull Market, Says Vikram Dhawan Of Nippon India MF

I think before I give any presentation on gold, I have mentioned one thing: two of the very accomplished people in the market, Warren Buffett and Ben Bernanke, have said that they don’t know anything about gold and they haven’t made any investment in gold. So, it means two things: if you are confused about gold, you are in august company, and secondly, be watchful of what I speak also.We are in the middle of a once in a generation bull market. And I think it’s very important to understand the dynamics and mechanics of this bull market. Gold is not just the best performing asset class of the past 2-3 years. Gold is also the best performing asset class of this century. Gold is considered to be a diversification and a hedge as well as insurance. So, if the best performing asset class of your portfolio is your insurance, then it means something: that either something is broken or about to break.In the year 2000, the total sovereign debt globally (sovereign debt is the debt which is in the books of the central banks), was about $20 trillion, and total global debt was $80 trillion. Fast forward to 2026, the total sovereign debt is $110 trillion, and total global debt is $370 trillion. Which means in the past 25-26 years, we have been adding anywhere between $3-4 trillion worth of sovereign debt and about $10-12 trillion of global overall debt.Now it does 2-3 things. First of all, with so much debt, if global GDP (gross domestic product) is $100-110 trillion, the debt to GDP ratio is three-and-a-half times. It does 2-3 things. First, what we are seeing in the bond markets today: nobody expected this bond market angst to happen right now. People were expecting it after our retirement, 20-30 years down the line. But today, people are asking for higher returns on bonds because they see visibility of deficits, they don’t see visibility of fiscal discipline.Second, when there is so much debt, it may reach an inflection point when the credit risks may rise. And that is the reason why central banks are buying gold, because gold is the only frontline asset class which doesn’t have a credit risk. So, central banks are buying because of that. Large investors are buying gold because people who are building generational wealth, they cannot forecast when this reckoning in the bond market will happen, when the reckoning in the climate will happen. But if you are building generational wealth, you need something in your portfolio that whenever that happens, there is at least one part of your portfolio which is protected.And last but not the least, when you have such a big debt, then the biggest enemy for you is deflation. Deflation happens in an overall debt of $400 trillion. If there is a 5 per cent contraction of the global GDP, it can result in anywhere from $5-10 trillion of output gap.This would be devastating for the people and the global economy. So, what the central banks have to do is, they have to ensure to ward off deflation, which means they have to tolerate higher inflation, and they cannot raise their interest rates too much, which is what we are seeing right now. Most of the central banks are planning to cut, including RBI (Reserve Bank of India). So, I think all these reasons make it very conducive for investing in gold.