Gold: I want to believe
However, there are a couple of things stopping me from believing in the latest version of “You Cannot Lose With Gold” thesis:
We’ve been here before. Hardly the first time the pro-gold community can only see upside in the monetary metal
Bonds will still yield. The Fear Trade will need a large dose of fear to work, but what if the Fear doesn’t materialize? What happens if our financial markets manage to negotiate an admittedly sticky period without its creaking edifice crashing into a million pieces? As one example, by simple trial and error the Fed has now recognized a weak link in the shape of US regional banks, so what’s to stop them from keeping the liquidity window open and making sure they don’t hit a cash crunch due to their collective decision to take on term bonds positions? Yes for sure it would be called “QE that isn’t QE” by its detractors, they may even call it “cheating”, but there’s no law against the strategy. And as long as the world keeps its confidence in the US banking system, its currency and therefore its interest-yielding paper will remain the primary safe haven during a stress-laden recessionary period.
Black Swans are not easy bets. The current Fear Trade “Win-Win” thesis on gold is essentially a very large tail risk bet, one that covers the US Dollar as much as anything else. You are betting on things going wrong and that’s a reasonable way of building a hedge position, not a primary investment. It all harks back to the basic reason to buy and own gold; it’s the insurance policy, it’s your baseline and if it’s the top performing asset in a balanced portfolio, it signals that other things are going wrong…bigtime. Or as this desk has stated on too many occasions already, gold doesn’t make you rich, it’s there to stop you from becoming poor.
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