Before I start, I should say that we do own gold or variants of it and do feel that it has a place in a multi-asset portfolio.
Our commodity expert at ASI has been positive on gold and finally South African gold miners were some of the first companies I analysed in the (very) distant past. That said, there are a few observations worth making on the yellow metal.
Firstly, and perhaps most importantly, gold has always been a storyteller’s dream. It has always seemed to me that you can fit virtually any narrative you wish around a gold holding.
This is certainly the case at the moment, when I read the ubiquitous coverage on gold – store of value, world going to hell in a handbasket, central bank currency debasement, inflation, deflation, the list goes on – all being proffered as reasons to own gold.
I suppose the problem with gold is that it is hard to value. It doesn’t have a stream of cashflows that I can discount, or a coupon that I can either compare to other things or judge its likelihood of being paid.
However, given that there are $15.8trillion of assets yielding less than zero at the moment, the argument is now put that gold’s zero yield offers a ‘premium yield’ – while this may be the case, it could also point one in the direction of being wary the former, rather than necessarily being enthusiastic about the latter.
There are also, I suspect, inconsistencies in the reasons offered to hold gold. Is it an insurance policy, should the world go to hell in a handbasket, or is going to hell in a handbasket one’s central case?
If the latter, there may be other more pressing issues in the portfolio to attend to, in addition to adding small gold positions?
Similarly those who bought gold at the 1980 (and indeed 2011) peaks have had many, many occasions to anticipate the sky falling down. It has not done so yet, although I have spent enough time over the past thirty years in meetings discussing the potential of it.
Finally, while we as investors appear to increase our enthusiasm for gold as the price rises, it is worth noting that the more price-sensitive participants in this market, namely the miners and jewellery buyers, will remain so.
While they are in the minority in this particular gold rush, given the $25bn which has flowed into the two largest US gold funds this year, they may not always be so. As we have seen before.
Richard Dunbar is head of multi-asset research at Aberdeen Standard Investments
All copyrights for this article are reserved to news