Appreciate this informative piece. What are your thoughts on 1) central banks’ return to gold, especially PBOC as China slowly decouples from USD, and 2) gold price relative to equities, real estate, and crypto valuation. Thank you
We are in an AI bubble. Jensen Huang suggests that China will dominate Ai because electricity is so much cheaper in China. Add to that the fact that Chinese are adopting AI very quickly and they have a supercompetitive economy and see Open Source rather than licensing as virtuous. I like the idea of people being willing to share technology and helping those who are in need. China has both the will and the trading surplus to make that possible. I would not be holding the US magnificent seven at this time. Apart from that Trump is a pirate.
Consider how nice it would be to have a 'cake tree' in your back yard. For you and only you, exclusively. Such a tree should be fruiting and flowering at the same time so that when a cake is removed it is simultaneously replaced. The stock of cake on the tree is never depleted. Unlike the fish in the sea, the act of fishing will never give rise to a shortage of fish. Whether you eat the cake or swap it for something else is immaterial. You can exchange this cake for anything that strikes your fancy. You can feed the famine stricken parts of the world. You can feed an army, pay for its clothing and arming and go to war, destroy a country and then rebuild it. You can buy influence. You can hire assassins, reward your friends and keep the others at bay. There is no limit to what you can do.
It's so much more useful to have a cake tree than a money tree, no matter how prolific it might be. Unless of course the money is a promise to pay that properly compensates the bearer for waiting. It should increase in value the longer you hold it.
If your cake had a use-by date that is next week, whereupon it simply disappeared, it wouldn't be of any value at all. Similarly, if you had a stock of cake already and no desire for more, its unlikely that you would exchange your useful stuff for more cake.
Necessarily, you should exchange the cake or money from your trees for things that you need ever so sparingly, so as not to flood the world with promises that you are never going to be able to keep.
This is a bit like the parable of the good shepherd.
Thank you Aswath for this unbiased analysis! Maybe one has to also look at the supply of money relative gold (and growth of its stock)? Sharing Lyn Alden's monthly newsletter as well as her book broken money for interested readers.
What a terrible piece. No mention of US debt, money printing, and what Central Banks do with USD if they don't buy US debt. No mention of how gold outperformed during every crisis from the GFC to COVID. No mention of how paper gold like ETFs are oversold versus the real underlying deliverability of physical gold. No mention of how PBOC wants all the gold for themselves and will tax retail gold purchases to dissuade competitive buying. No mention of the fact that US claims of holding 7000 tons of gold is a lie - no one has seen it and audited it. Fiat money can be created instantly, gold can't do that, which is why it has survived hundreds of paper currencies in centuries.
Author epitomizes the academic. There is academia and then there’s the markets….theres military school and then there’s real wars - and wars aren’t won with textbooks
Investors seeking refuge from U.S. crises frequently drive demand for gold, as the precious metal is widely regarded as a safe-haven asset. Periods of economic uncertainty, rising U.S. debt, and geopolitical tensions can lead investors to seek gold as a reliable store of value. This behavior, influenced by a mix of fear and economic factors, has historically led to gold price increases.
Price surge driven by fear
- Response to US economic crises: During significant financial crises in the U.S., such as the 2008 Subprime Crisis, investors have historically shifted towards gold. During the COVID-19 pandemic, gold prices hit record highs as economic uncertainty drove demand for safe-haven assets.
- Geopolitical tensions: Global conflicts and instability often cause a shift towards gold. For example, conflicts in the Middle East contribute to a rise in gold prices due to general market fear and instability.
- Fear of inflation and dollar depreciation: When U.S. central banks inject money into the system to combat recession, inflation can follow. In such scenarios, gold is seen as a hedge against a depreciating U.S. dollar, prompting investors to preserve their purchasing power by buying gold.
- Growing U.S. debt: The increasing U.S. government debt, amplified by fiscal decisions, can raise concerns about economic stability and currency debasement. This uncertainty has historically replaced other market worries as a driver of gold's bullish momentum.
Good article but I think the analysis is incomplete without investigating the change in gold supply and its impact on prices. This is based on two observations:
1) The Money Illusion by Irving Fisher argued that gold was a poor currency not because it was inefficient, but because it was an unstable source of value that made monetary policy subject to the commodity cycle. In short, increases in gold production acted as expansionary monetary policy (more gold = more dollars), while decreases in gold production created restrictive monetary policy. This dynamic made it impossible for central bankers to manage monetary policy in a way that responded to the needs of the economy.
2) The current bull market in gold is a function of supply limitations. Major gold miners went on a capex binge in the mid 2010s that weakened gold prices and miner balance sheets, and led to investors effectively banning management teams from building new mines. Add to that the fact that production yields decrease while production costs increase as mines age, and you have a supply-constrained environment that becomes hyper sensitive to changes in demand.
Appreciate this informative piece. What are your thoughts on 1) central banks’ return to gold, especially PBOC as China slowly decouples from USD, and 2) gold price relative to equities, real estate, and crypto valuation. Thank you
We are in an AI bubble. Jensen Huang suggests that China will dominate Ai because electricity is so much cheaper in China. Add to that the fact that Chinese are adopting AI very quickly and they have a supercompetitive economy and see Open Source rather than licensing as virtuous. I like the idea of people being willing to share technology and helping those who are in need. China has both the will and the trading surplus to make that possible. I would not be holding the US magnificent seven at this time. Apart from that Trump is a pirate.
Analysis around gold as indicator and its relation to currency:
https://open.substack.com/pub/towardtatva/p/the-fiat-parity-ratio-reading-the?r=6qrpyo&utm_medium=ios
Consider how nice it would be to have a 'cake tree' in your back yard. For you and only you, exclusively. Such a tree should be fruiting and flowering at the same time so that when a cake is removed it is simultaneously replaced. The stock of cake on the tree is never depleted. Unlike the fish in the sea, the act of fishing will never give rise to a shortage of fish. Whether you eat the cake or swap it for something else is immaterial. You can exchange this cake for anything that strikes your fancy. You can feed the famine stricken parts of the world. You can feed an army, pay for its clothing and arming and go to war, destroy a country and then rebuild it. You can buy influence. You can hire assassins, reward your friends and keep the others at bay. There is no limit to what you can do.
It's so much more useful to have a cake tree than a money tree, no matter how prolific it might be. Unless of course the money is a promise to pay that properly compensates the bearer for waiting. It should increase in value the longer you hold it.
If your cake had a use-by date that is next week, whereupon it simply disappeared, it wouldn't be of any value at all. Similarly, if you had a stock of cake already and no desire for more, its unlikely that you would exchange your useful stuff for more cake.
Necessarily, you should exchange the cake or money from your trees for things that you need ever so sparingly, so as not to flood the world with promises that you are never going to be able to keep.
This is a bit like the parable of the good shepherd.
Fantastic piece, very detailed and quite informative. Thanks for sharing Aswath
Thank you for this thoughtful piece!
What about gold as contributor to diversification?
Thank you Aswath for this unbiased analysis! Maybe one has to also look at the supply of money relative gold (and growth of its stock)? Sharing Lyn Alden's monthly newsletter as well as her book broken money for interested readers.
What a terrible piece. No mention of US debt, money printing, and what Central Banks do with USD if they don't buy US debt. No mention of how gold outperformed during every crisis from the GFC to COVID. No mention of how paper gold like ETFs are oversold versus the real underlying deliverability of physical gold. No mention of how PBOC wants all the gold for themselves and will tax retail gold purchases to dissuade competitive buying. No mention of the fact that US claims of holding 7000 tons of gold is a lie - no one has seen it and audited it. Fiat money can be created instantly, gold can't do that, which is why it has survived hundreds of paper currencies in centuries.
Author epitomizes the academic. There is academia and then there’s the markets….theres military school and then there’s real wars - and wars aren’t won with textbooks
3 factors of gold drivers: 1. Inflation, 2. Fear of Crises and 3. Real interest rates
Investors seeking refuge from U.S. crises frequently drive demand for gold, as the precious metal is widely regarded as a safe-haven asset. Periods of economic uncertainty, rising U.S. debt, and geopolitical tensions can lead investors to seek gold as a reliable store of value. This behavior, influenced by a mix of fear and economic factors, has historically led to gold price increases.
Price surge driven by fear
- Response to US economic crises: During significant financial crises in the U.S., such as the 2008 Subprime Crisis, investors have historically shifted towards gold. During the COVID-19 pandemic, gold prices hit record highs as economic uncertainty drove demand for safe-haven assets.
- Geopolitical tensions: Global conflicts and instability often cause a shift towards gold. For example, conflicts in the Middle East contribute to a rise in gold prices due to general market fear and instability.
- Fear of inflation and dollar depreciation: When U.S. central banks inject money into the system to combat recession, inflation can follow. In such scenarios, gold is seen as a hedge against a depreciating U.S. dollar, prompting investors to preserve their purchasing power by buying gold.
- Growing U.S. debt: The increasing U.S. government debt, amplified by fiscal decisions, can raise concerns about economic stability and currency debasement. This uncertainty has historically replaced other market worries as a driver of gold's bullish momentum.
@Aswath Damodaran Watched your video with Scott Galloway on AI. Sharing my article
https://open.substack.com/pub/pramodhmallipatna/p/the-5-trillion-question-can-ai-ever
@Aswath Damodaran and this one in addition to the one above
https://open.substack.com/pub/pramodhmallipatna/p/ais-grand-entanglement-the-subprime
On Bitcoin, do let me know how can i improve my writing:https://wealthlab.substack.com/p/are-you-still-holding-bitcoin?r=6txb22&utm_campaign=post&utm_medium=web&showWelcomeOnShare=false&triedRedirect=true
I just wrote and article about gold and one stock that faces imminent 150% upside. https://open.substack.com/pub/guardianresearch/p/happy-thanksgiving-a-seat-at-the?r=rzrlz&utm_medium=ios
Thoughts on GDX and the gold silver mining companies? A friend mentioned he has made good returns in this sector in recent years
"silver was overpriced relative to gold". this was the other way around. thanks
Good article but I think the analysis is incomplete without investigating the change in gold supply and its impact on prices. This is based on two observations:
1) The Money Illusion by Irving Fisher argued that gold was a poor currency not because it was inefficient, but because it was an unstable source of value that made monetary policy subject to the commodity cycle. In short, increases in gold production acted as expansionary monetary policy (more gold = more dollars), while decreases in gold production created restrictive monetary policy. This dynamic made it impossible for central bankers to manage monetary policy in a way that responded to the needs of the economy.
2) The current bull market in gold is a function of supply limitations. Major gold miners went on a capex binge in the mid 2010s that weakened gold prices and miner balance sheets, and led to investors effectively banning management teams from building new mines. Add to that the fact that production yields decrease while production costs increase as mines age, and you have a supply-constrained environment that becomes hyper sensitive to changes in demand.
https://open.substack.com/pub/stratoswealthmanagement/p/the-curious-case-of-japanese-yen-4d8?utm_campaign=post-expanded-share&utm_medium=post%20viewer