Big data company Palantir’s investment in gold bars had some conspiracy theorists wondering whether the company had insider knowledge – from its government contracts – of an impending disaster. Although an unexpected move from the cutting-edge software company, it has put gold back in the spotlight as a treasury strategy.
Investment in bitcoin and other cryptocurrencies has been a growing trend, particularly for innovative corporations that are looking to diversify and pursue new hedging strategies. So, when Palantir – the big data software company founded by legendary investor Peter Thiel – announced it had invested in gold bars, it caused something of a stir. For such a cutting-edge digital company, many expected an equally digital investment strategy.
In its latest quarterly update, the company reported that during August 2021 the company purchased US$50.7m in 100-ounce gold bars. “Such purchase will initially be kept in a secure third-party facility located in the northeastern United States and the company is able to take physical possession of the gold bars stored at the facility at any time with reasonable notice,” the company said in its filing with the Securities and Exchange Commission (SEC).
Palantir has been described as an espionage firm because of its contracts with the likes of the Central Intelligence Agency (CIA) – which was an early investor – and the Federal Bureau of Investigation. It has been portrayed as a secretive, big brother firm that wields too much power given the data it has access to. In one of its contracts, it scraped data for the UK’s National Health Service to understand how coronavirus was spreading, and its data analytics were used in the UK’s vaccination programme.
If a company like this is investing in gold – which it can access at short notice – does it mean it can foresee a black swan event on the horizon? Is the visionary Thiel – the co-founder of PayPal and an early investor in Facebook – onto something while others are missing a trick by focusing on cryptocurrencies instead? Or is gold just a sensible hedging strategy for the company?
To put the US$50.7m gold investment in perspective, it is actually chump change when compared even to the personal wealth of David Glazer, Palantir’s Chief Financial Officer and Treasurer. According to Benzinga, Glazer’s net worth is estimated to be at least US$149m. He owns approximately 2.5m units of Palantir stock and sold an estimated value of US$51.9m in the last year.
And the amount of gold the company has invested in is still small, relative to its other assets. As of 30th June, for example, it had US$964m invested in money market funds and US$65m in certificates of deposit.
One view is that gold’s value is expected to increase as the value of the US dollar declines. Jeffrey Gundlach, the CEO and founder of investment firm DoubleLine Capital, who earlier in his career was dubbed the ‘King of Bonds’, says the US dollar’s future as the global reserve currency is under threat. “I think ultimately gold is going to go a lot higher, but it’s really in hibernation right now,” he was quoted as saying by Yahoo Finance.
And according to the World Gold Council’s report that was released last week, investors are increasing their allocation to commodities, given the improving economic conditions, higher inflation and rates expectations as well as commodity supply shortages.
The ‘Gold: the most effective commodity investment’ report also notes that gold’s weight in commodity indices is increasing and should continue to increase for a strategic allocation. Also, gold’s volatility has been stable despite the variability in equities, bonds and alternative assets. The report also states that gold has diversification properties that come into their own during periods of systemic risk. Are we in a period of systemic risk right now? Perhaps one would need the data-crunching skills of Palantir to find out…
