From Roy Jastram's The Golden Constant: The English and American Experience 1560 to 1976:
> Andre Sharon, head of the international research department at Drexel Burnham, Inc., notes, “the value of gold essentially derives from its capacity to preserve real capital and purchasing power.”† I select this particular quotation because of the prestige of the organization and the position of the spokesman, but statements in this vein can be found in great numbers. They can be traced back for generations and in many countries. How can this proposition so contrary to statistical fact become so widely believed and quoted? Possibly because gold has preserved capital in cataclysmic cases it is easy to infer that it can be trusted to do the same in less severe circumstances. To extrapolate from gold’s protection in singular catastrophes to its use as a strategy against cyclical infation is an example of faulty inductive reasoning.
Gold is an unproductive asset, that does not do anything useful against inflation, and when used to back currency (e.g., Gold Standard) does not help with stability (and may actually cause instability):
Gold is great as a hedge for many things, and that is exactly how I use it. However, I am not suggesting all people have to have a physical supply. There are 3 ways at least that it is regularly used as an investment
In the case of a weakening dollar, sanctions as weapons, and the potential rise of a new basket, or reserve currency, there are many reasons why gold may make sense to add to a portfolio.
>Gold is an unproductive asset
Anecdotally, my gold hedge via GLD is up >20% per annum in capital gains.
If the US dollar is debased more through excessive printing, it will go much, much higher.
> Gold also works as a hedge against currency hyperinflation
currency hyperinflation is often caused by (very) bad monetary policy (or other decisions) from the gov't, or an apocalyptic event of some sort - which, even if you try to hedge, will not save you from the fallout from such an event.
You'd be better off moving away to a more stable country, or if there's no where to move, you'd be needing guns and ammo. Either way, investment returns would be the last thing on your mind.
A hedge is a financial instrument that is negatively correlated with an exposure. A hedge position is not supposed to have a positive return, it's supposed to offset another position, so that the combined return of both positions is zero, or close to zero. You're using financial jargon in an attempt to sound clever, but you only sound like somebody who doesn't know what they're talking about.
> You're using financial jargon in an attempt to sound clever, but you only sound like somebody who doesn't know what they're talking about.
Stop with the snark, you're violating the rules.
> Hedge defined "To hedge, in finance, is to take an offsetting position in an asset or investment that reduces the price risk of an existing position. A hedge is therefore a trade that is made with the purpose of reducing the risk of adverse price movements in another asset. Normally, a hedge consists of taking the opposite position in a related security or in a derivative security based on the asset to be hedged."
> "What Are the Advantages of Buying Gold Over Treasuries? Gold is popular among investors because it can be used as a hedge against currency devaluation, inflation, or deflation. It’s also liked for its ability to provide a safe haven during times of economic uncertainty. When it comes to gold and taxes, depending on your income level, Treasury investments are typically more favorable tax-wise."
What is your risk appetite? How does gold affect the risk profile of your portfolio, specifically in terms of volatility and value-at-risk, and also more generally?
> GOLD not only does well during times of intense inflation, it does very well.
No, it does not:
* https://www.nber.org/papers/w18706
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789
From Roy Jastram's The Golden Constant: The English and American Experience 1560 to 1976:
> Andre Sharon, head of the international research department at Drexel Burnham, Inc., notes, “the value of gold essentially derives from its capacity to preserve real capital and purchasing power.”† I select this particular quotation because of the prestige of the organization and the position of the spokesman, but statements in this vein can be found in great numbers. They can be traced back for generations and in many countries. How can this proposition so contrary to statistical fact become so widely believed and quoted? Possibly because gold has preserved capital in cataclysmic cases it is easy to infer that it can be trusted to do the same in less severe circumstances. To extrapolate from gold’s protection in singular catastrophes to its use as a strategy against cyclical infation is an example of faulty inductive reasoning.
* PDF: http://csinvesting.org/wp-content/uploads/2016/02/RoyJastram...
* https://www.pwlcapital.com/will-gold-save-the-day/