Don't Believe Your Lying Eyes: Gold Does Not Offer a Safe Harbor Against Financial Crises

 

"Gold has worked down from Alexander's time... When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory."

Bernard Baruch

Gold has moved in price from $250 in 2000 to $1,350 today. And given the structure of supply and demand it is likely to go much higher unless it becomes a fixed asset in a global monetary system once again.

Don't buy any, don't like it. It doesn't matter.

The flaws in this paper are obvious. A very broad sweep of data over time without sufficient attention to the character and elements of the context of a situation can easily be misleading, or be used to 'prove' something.

It takes someone with the time and ability to go into the various situations where something has happened, and happened with a particular cause and effect that was widely acknowledged, in order to really understand the mechanisms and nature of a thing.

Keep believing then. Believe in memes and quaint canards like the 'efficient market theory' and 'printing money endlessly doesn't matter.'

So called experts have their noses stuck so deeply into 'what everyone knows' that they can fail to see the forest for the trees. They miss the big changes, the 'sea-changes.'

In 2006, the central banks of the world became net buyers of gold bullion for the first time in 30 years, and are continuing to do so in a very big way. Gold has been moving en masse to the emerging economies of Asia, the biggest beneficiaries of 'globalisation.'

And there is a reason for this, that is not based in some quirk or personal idiosyncrasy.

Money talks. The real economy has a message to tell. You do not have to listen.

There will be those who will continue to say, 'this is not happening' even while a tsunami of change rolls over them.

The time for warnings was then. This is now.

And events are underway that will have something like the character of a force of nature.

GOLD HAS NEVER BEEN A GREAT HEDGE AGAINST BAD ECONOMIC TIMES: Evidence from decades of US and global data

Gold has not served very well as a hedge against bad macroeconomic and stock market outcomes. That is the central conclusion of research by Professors Robert Barro and Sanjay Misra, published in the August 2016 issue of the Economic Journal. Their study draws on evidence from long-term US data on gold returns, as well as gold returns during some of the worst macroeconomic disasters experienced across the world.

Gold has historically played a prominent role in transactions among financial institutions even in modern systems that rely on paper money. What’s more, many observers think that gold provides a hedge against major macroeconomic declines. But after assessing long-term US data on gold returns, the new research finds that gold has not served consistently as a hedge against large declines in real GDP or real stock prices.

From 1836 to 2011, gold delivered low average real price appreciation and experienced high average volatility. The mean real rate of price change was 1.1% per year, close to the 1% average real rate of return on three-month US Treasury Bills and comparable assets. The standard deviation of annual gold returns was 13.7%, almost as high as the 16.7% on the US stock market...

Royal Economic Society, Gold Has Never Been a Great Hedge Against Bad Economic Times