Under the gold standard, investors looking to grow their wealth could focus their attention on a business’s potential to increase in value at a rate faster than gold instead of considering its merits in abstraction. In this historical scenario, investors demanded a cash flow yield of roughly 5% in exchange for the risk posed by equity exposure, knowing that if they were not comfortable with the risks of a particular opportunity, they could always keep pace with the value of money by maintaining their wealth in gold.

This, of course, is no longer an option in a world of fiat currency; relatively stable money creation has given way to central banks that are able to print as much currency as they deem necessary to meet their economic objectives, with debasement an unavoidable policy byproduct. Without the option of riskless preservation of their purchasing power, investors must accept some degree of investment risk just to stay whole. Unfortunately, incremental compensation for all forms of investment risk has been falling steadily, as evidenced by low sovereign rates, tight credit spreads and richly valued equity markets.

The preservation of clients’ purchasing power over time serves as the reference point First Eagle’s Global Value team, meaning that we seek to deliver a long-term rate of return that outpaces the growth of the money supply. We pursue this goal by consistently seeking to own businesses we believe embody scarcity value, complemented in certain portfolios with an allocation to gold-related securities as a potential hedge.