It took me some time to reach a conclusion on gold because I kept getting stuck on that “where’s the inflation?” thing. Also many of the proponents of gold seem like conspiracy theorists and altogether odd ducks that are tough to take seriously. I did notice over the last year that some fundamental investors had reported large positions in gold call options. That struck me as odd but without knowing their entire portfolio strategy I couldn’t tell if this was a real position or a just hedge of some kind. But gold has shifted its role in the past decade and appears to be ready to continue that trend. Gold is basically being crowd-sourced by the rich into a global standard without anyone “officially” having to do anything. We can thank governments again for their short-sighted zeal in going after more revenue rich people for creating this shift. Besides printing lots of paper money the governments have finally penetrated the “safe havens” that were used to keep money - secretive Switzerland and hidden offshore accounts are no longer easy, stress free ways to keep money safe and hidden from the governments of the world. At the same time, governments have made no secret of the fact that the rich will be paying more in taxes to finance these huge deficits being run up to support the economy. The combination of a a more aggressive tax collector and fewer places to hide deposits is a simple recipe for the rich looking for new places to put their money. Gold is a refreshingly simple and silent hunk of metal. It’s the complete opposite of all those exotic derivatives and quantitative investment vehicles that soaked the rich. Nobody has to know what you have, where you keep it and if you give or receive it. (Technically of course one needs to declare all income, even if paid in gold, but you get the picture.) It was pointed out to me that gold prices in the last decade have not really traded in a way that suggests that they are really linked to inflation. So the relationship between gold and other assets has been changing. It could also be that the economies that are now driving growth in the world (like China) are fond of gold and although they are forced to buy and hold many USD, they may prefer gold. The drawbacks to owning gold are less important today. One of the key criticisms about gold is that it is not a “productive” asset and pays no interest. One can’t rent it like real estate and there are no dividends or other cash flow. (If you need your gold stored there are even costs in the form of storage and insurance.) But real interest rates (interest paid less depreciation of the currency) are not very attractive (possibly negative in fact depending on how you do your math.) Rental real estate is becoming attractive again so it may begin to do well alongside gold too. The key there remains “CAP rates” of 10% or more, depreciation and low mortgage rates. But even if that’s true today the wealthy will want to use multiple asset classes to diversify. The debasement of currencies and the gross incompetence of the governments makes gold more attractive every day. All the data on the development of gold suggests that even reasonable investors without a fixation on commodities or conspiracy theories will want to have a gold position in their portfolios. The global macro trends in place today appear to be fairly durable. A position in gold makes sense so long as that is the case because incremental assets will be allocated to gold under these circumstances. Rich people are very keen to hold on to their money. Gold looks like an irresistible solution for them for a chunk of it.

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