3 On the other side is Ray Dalio, who argued in a
interview (see Ward 2011) that U.S. Treasury bills are no longer a safe asset and that there will be an ugly contest to depreciate the three main currencies (dollar, Yen and Euro) as countries print money to pay off debt:
Gold is a very underowned asset, even though gold has become much more popular. If you ask any central bank, any sovereign wealth fund, any individual what percentage of their portfolio is in gold in relationship to financial assets, you'll find it to be a very small percentage. It's an imprudently small percentage, particularly at a time when we're losing a currency regime.
It is not surprising that there is so much disagreement about gold’s future. This disagreement reflects
the fact that at least six somewhat different arguments have been advanced for owning gold:
gold provides an inflation hedge
gold serves as a currency hedge
gold is an attractive alternative to assets with low real returns
gold a safe haven in times of stress
gold should be held because we are returning to a
world gold standard
The debate over the prospects for gold resembles in some sense the parable of the six blind men and the elephant (see Saxe 1872). Different perspectives and different models lead to different insights. Depending upon which rationale or combination of rationales one embraces, gold is either very expensive or attractive. The debate over the value of gold is also an example of a Keynesian
which suggests that the price of gold is not determined by what you think gold is worth - what matters is what others think others think gold is worth (see Keynes 1936).
While the possible value of all the gold ever mined is about $9 trillion,
only a small amount of gold actually trades in financial markets. We show that the investment demand for gold is characterized by positive price elasticity. This is one way of referring to momentum investing. As a result, even though
historical measures of “value” might suggest gold is very expensive, it is possible that the actions of a
relatively small number of marginal, momentum, buyers of gold could drive the real and nominal price
much higher (especially if the marginal buyers are not focused on “valuation”).
See World Gold Council (2010a).
Another example of contrasting views is Howard Marks’ (2013) “There is nothing intelligent to be said about gold”,
), and Peter Bernstein’s (2000) authoritative history of
the societal footprint of gold.
The World Gold Council (2010b) estimated that at year-end 2011 there were about 171,300 metric tons of gold above ground. This is a widely referenced estimate of the cumulative amount of gold that has been mined over time. The fact that this estimate is widely referenced does not mean that it is accurate. Given 32,150 troy ounces per metric ton and a price of $1,650 per ounces yields a value of about $9 trillion.