Gold, the Ultimate Safe Haven Asset. A Looming Nobel Prize?

Yesterday, the Nobel prizes in economics were awarded. Unfortunately, gold has been omitted and got nothing. How unfair! But looking at the Dutch central bank press release, gold would have much higher chances if they were the ones granting the prizes and not the Swedish central bank!

2019 Nobel in Economics and Gold

Yesterday was a big day! At least for all those boring economists and similar bean-counters. The Nobel Prize in economics was awarded. Abhijit Banerjee, Esther Duflo, and Michael Kremer became 2019 laureates for their experimental approach to alleviating global poverty.

Nice! But, dear Nobel Committee, we also have great ideas how to reduce poverty in the world. Just give everyone some gold! We know, that’s not the quick road to wealth, but whatever the current outlook, gold portfolios should appreciate substantially in the long run.

Jokes aside, and let’s get serious. How about central banks stop printing money? You see, inflation is a silent wealth killer. Even a small rate of inflation, like the popular 2-percent target, means that prices double each generation (around 35 years). But in many developing countries, inflation rates are much higher, closer to 5 percent, which means that prices double each 14-15 years. Inflation is a great hit to real wealth. So, even if gold does not generate any yield, it can provide people a hedge against inflation (under the condition that inflation is not small or diminishing).

Or how about central banks stop keeping interest rates at ultralow levels? Yes, zero or even subzero interest rates are great for borrowers, but we doubt whether anyone attained wealth through indebtedness. If you are a company, you can leverage to finance your investments. But if one is a consumer and takes a loan to buy another luxury car, he is moving away from making a fortune. You cannot reach wealth except through hard work, savings and investments. Due to diminished compound interest, the ultralow interest rates reward saving much less, putting all savers in troubles. For example, if a person saves $100 each month at 4 percent, then she will have $120,000 in forty years, but only $59,000 at 1 percent. Our saver would be about half poorer in forty years. Say goodbye to your happy retirement under the palm trees! Gold will not substitute your pension fund, but when added to portfolio, it can make it more resilient and profitable. The fact that gold usually shines during very low real interest rates, is a nice bonus!

Last but not least, how about stopping maintaining the flawed monetary system which generates business cycle and economic crises with all their disastrous consequences (think about high unemployment)? Luckily, the yellow metal can help in this regard as well. Even central banks begin to notice the exceptional features of gold… or, goud!

Dutch Central Bank Acknowledges the Unique Role of Gold

The De Nederlandsche Bank (DNB), which is the central bank of the Netherlands, has published a rather unusual note. The DNB pointed out that gold is the ultimate safe-haven asset, which always retains its value, crisis or no crisis:

Shares, bonds and other securities are not without risk, and prices can go down. But a bar of gold retains its value, even in times of crisis. That is why central banks, including DNB, have traditionally held considerable amounts of gold. Gold is the perfect piggy bank – it’s the anchor of trust for the financial system. If the system collapses, the gold stock can serve as a basis to build it up again. Gold bolsters confidence in the stability of the central bank’s balance sheet and creates a sense of security.

Isn’t it a shocking note? The respected central bank of a developed economy has finally acknowledged the possibility of the monetary system collapse. We hope that the timing of the publication does not reflect any insider knowledge about the state of the global monetary system… Or, gold bulls could actually keep their fingers crossed for it. And what is more: the DNB admitted that gold would be superior than financial assets during the hard reset! Finally, we can praise the central banks!