Debasement Trade aka BOLD

[mattee2264]

This seems to be the trade de jour: pile into gold, cryptos and other scarce assets. Idea being that governments have issued too much debt and central banks will have to expand money supply and reduce interest rates to help finance it and this will lead to an erosion of the purchasing power of fiat currencies. At the same time for the first time since 1995 foreign central banks hold more gold than US treasuries as a share of their international reserves. There are also the usual claims that real world inflation is far above the 3-4% central banks claim. 

This has also been used as a justification for historically high stock market valuations on the basis that equities are a better inflation hedge than cash and bonds and cash is trash. 

 

Goldman Sachs are predicting gold will hit $5,000 and positioning themselves for more widespread institutional adoption of bitcoin and other cryptos.  Other Wall Street banks are following suit. And of course retail investors are all over it. Kuppy was banging on about Project Zimbabwe years ago and while he has shifted his focus to the AI capital cycle on his twitter he liked a post pointing out that the S&P 500 has yet to recover from the dot com bubble crash in gold terms and said we need to care more about real returns from now on and gold is the scorekeeper. 

 

It sounds convincing at first sight. But I am generally sceptical when it comes to consensus trades and remember the general maxim that the best time to hedge against a risk is when hedges are cheap and not when hedges are at record highs. Gold has outperformed the S&P 500 over the last 25 years but 25 years ago gold was very out of favour and now it is very popular. Also there has been a  mania for speculation since COVID especially amongst retail investors and gold and bitcoin lend themselves particularly well to speculation as there is no fundamental value to anchor to. Also I think if any of the dire consequences came to pass then gold and bitcoin would probably crash a lot harder than stocks.

 

Any thoughts?

 

 

 

 

[gfp]

contrary indicator:  my Wife's uncle shows up unexpected yesterday for lunch and all he can talk about is how much he is making in his GLD etf.  He busts out the telephone several times to show me how close it was to $4000/oz (it hit the even number after he left).  He is not an investment professional.  Not even retired from his job at 69 years old.

 

The craziest part of the visit:  he was wearing a brand new pair of Hey Dude! shoes that he had just purchased on his vacation...

 

[Eldad]

I’m going to buy some timberland with as long a fixed note as they will give me. Will be fun to use it with the family as well as an inflation hedge.
 

Gold has already passed me by and I sold all my miners way too early for 30% gains. 
 

Other than that, just good stocks. 

[Gregmal]

Yea gold is having its once a decade run that gets the gold bugs all wet between the legs but there’s far better assets that accomplish the same thing. Sports teams, bitcoin, trophy real estate, high end collectibles/art. The theme is finally gaining traction but the thesis has pretty much worked…..forever. 

[Longnose]

Eh lots of things better than gold to own.

[thepupil]

gold "feels" expensive. 122 ounces buy a median existing USA home. the average of the last 25 years is 272 and the high is 585...2012 troughed at 88, but houses were very cheap in 2012. So relative to a median existing USA home, which I'd regard as "historically unaffordable and a tad stretched", gold seems pretty dear. 

 

an ounce of gold buys 54 barrels of oil. since 1990 the average is 19. trough is 6.3. peak is 90 but excluding 4/2020 the peak is today. 

 

an ounce of gold buys 8 units of copper, average is 4.0, low is 1.7, high is today

 

wheat: 8 today, all time high, average is 1.5, low is 0.2....since 1973

 

so is gold expensive or is everything else cheap? I have no idea, but gold is a "store of value" and in my view has returned far more than a "store of value" should. it doesn't have the same "adoption thesis" as BTC. it's already been an asset class for several millennia. 

 

it feel slike expensive insurance to me. could still need the insurance of course, but doesn't feel convex or asymmetric at all (from here)

[SafetyinNumbers]

It’s interesting to see crypto being recycled into gold. Tether is taking the interest off of its stablecoin float and buying as much gold as China.