After the gold rally, is there any investment value?

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Since March this year, the price of gold has stepped out of the pace of "six relatives do not recognize", not only hitting new highs, but also breaking many previous "conventions". Whether inflation or deflation, good or bad, it seems that gold prices cannot stop the rise.

The strong trend not only makes the bearers red-eyed, but also the holders panic. They all care, after the big rise, is there still investment value in gold?

In popular asset allocation theory, gold is not a large class of assets with high returns.

Jeremy Siegel, in his famous book The Future of Investors, counts the returns of various types of assets over a period of 200 years, from 1802 to 2003. In 1802, the return on investing $1 in gold, notes, bonds, and stocks was $1.39, $301, $1,072, and $579,485, respectively, and the purchasing power of holding cash became $0.07, which shows that the cumulative effect of inflation is very staggering.

In other words, in the long run, holding cash will continue to depreciate, holding gold will have a slight return in addition to hedging its value, holding stocks (especially US stocks) has the highest return, with an annualized return of 6.86% in the past 200 years, followed by bonds, with an annualized return of 3.55% in 200.

According to historical statistics, the current trend of gold seems to have overdrawn the earnings in the next few years.

So should holders cash out on the upside, and should wait-and-see players not enter the game?

Let's jump to conclusions. We still have to study the logic behind this round of gold bull market.

Newton pioneered the gold standard

Let's start at the beginning. Historically, because of its rarity, beauty, easy to divide, and non-corrosive properties, gold has been used as a medium of exchange and a store of value by ancient civilizations.

In the words of Marx, "Gold and silver are not money by nature, and money is naturally gold and silver." "The global consensus formed over thousands of years is indestructible.

After all, the amount of gold and silver was limited, and the ancients had to mint all kinds of currencies for daily use, but the ensuing currency chaos and uncontrolled coinage have been plaguing Chinese and foreign countries.

This problem was solved by a great British cleverness, that is, Newton. For his outstanding contributions, he was appointed Director General of the British Mint. During his tenure, he proposed for the first time a gold standard, pegging the price of gold to the pound sterling. In 1816, Britain passed the Gold Standard Act, which formally stipulated that the legal value of a currency was directly linked to the gold content, and the public was free to exchange paper money for gold.

This system was subsequently emulated by many countries, and the international gold standard system was gradually formed. During that period, the world's major economies adopted the gold standard, the international monetary system was relatively stable, and the exchange rate fluctuated less, which facilitated international trade and capital flows.

During World War I, countries suspended the gold standard and issued large amounts of paper money in order to raise military spending, which led to currency depreciation and inflation. Attempts to restore the gold standard after the war were made difficult to sustain by economic trauma and a shortage of gold reserves. In 1931, Britain was the first to announce the cessation of gold exchange, marking the collapse of the international gold standard system.

Once the currency is unanchored, the authorities will inevitably have the urge to over-issue the currency, especially during the war, and the best excuse is to rush to do the job. However, the objective law is irresistible, and the indiscriminate issuance of currency will eventually lead to hyperinflation, economic collapse and even regime subversion. The well-known golden yuan coupon is a typical case.

After World War II, the United States led the creation of the Bretton Woods system centered on the dollar, with the dollar pegged to gold and other national currencies pegged to the dollar.

The gold standard has dampened the central bank's impulse to over-issue money, but it has its drawbacks. Gold is relatively scarce and its production is generally stable, which is supposed to be an advantage to ensure its value, but the rapid development of technology and economy has made gold production unable to keep up, and the gold standard can no longer meet the needs of expanding commodity circulation. This fundamental flaw eventually led to the collapse of the Bretton Woods system in 1973, the official decoupling of the US dollar from gold, and the global entry into the era of credit money.

After the abolition of the gold standard, how to restrain the monetary authorities from printing money indiscriminately is a worldwide problem. The credit crisis of legal tender money has not been fundamentally resolved.

Although the gold standard has been abolished and gold is no longer legal tender, it is still considered an important reserve asset by central banks and investors due to its historical status, scarcity and safe-haven properties.

Calls for a "return to the gold standard" have also been heard from time to time. But there are too many theoretical and practical obstacles to returning to the gold standard. Some rational proponents of gold are only suggesting that gold should return to a certain monetary function, rather than a full return to the gold standard.

Warren Buffett despises gold

When it comes to investment value, Warren Buffett, another American smart and the world's most successful investor to date, has never hidden his disdain for gold.

Warren Buffett once turned on God's perspective and mocked gold: "People dig up gold from Africa or elsewhere, melt it into gold bars, dig another hole, bury it, and hire people to stand around and guard it." And gold itself is useless. Any Martian would be puzzled by this. ”

Later, when Buffett communicated with friends, he elaborated a little on the reasons why he was not optimistic about gold:

"You can put all the gold that comes out of it together, and they can fill a cubic space that's 67 feet long, wide, and high. At the current price of gold ($1,350 per ounce), the equivalent of the value of this gold would allow you to buy all of the U.S. farmland. In addition, you can buy 10 ExxonMobil oil companies. And then you have $1 trillion in money to spare. Or, you can have a giant metal cube. Which approach would you choose, and which approach would generate more value?"

Warren Buffett actually talks about the essence of value investing: investing in products that create value and generate consistent cash flow.

According to his logic, an investor buys a piece of land that can produce food and build a factory and open a store, buy a company (stock) that can continue to produce and pay dividends to shareholders, and buy a piece of gold, whether it is ten years or a hundred years from now, it will still be a piece of gold and will not bring any other output.

Warren Buffett's logic is fine, but note that his views don't necessarily apply to others. Warren Buffett is looking at the return on investment from his own point of view, and the problem is precisely that the vast majority of people are not Buffett and do not have his qualifications.

First of all, Warren Buffett was born in the United States in 1930, and his life happened to be the complete upward curve of the United States from coming out of the Great Depression to dominating the world, and the overall national fortunes went all the way up. The vast majority of people in other countries lose in reincarnation.

Second, even if it is an American, how many people have Warren Buffett's vision and heart? Buffett can find investment varieties that far exceed gold, which does not mean that others can do it.

This is a point that many Buffett believers have never figured out. There's nothing wrong with Warren Buffett despising gold because he's Buffett. Many ordinary investors, instead of tossing around in the stock market similar to a casino, may be better to choose gold honestly and elongate to see how much to hedge value.

In the era of de-dollarization, gold is stronger than love

There is also an experience in China about gold investment, that is, "antiques in prosperous times, gold in troubled times". Many people will ask, why?

The old sayings that have been passed down for a long time often contain profound truths. In fact, the translation is that in the bull market, you should choose the varieties with high elasticity, and in the bear market, you should choose the varieties that are resistant to falling. Isn't it suddenly clear?

By extension, gold is not a good choice in an economic upcycle. Everyone should start a business, invest, and if the artist is bold, he can also go into debt and try and make mistakes. When the general trend is upward, there is a high probability of success and high returns.

In periods of economic downturn or shock, uncertainty is strong and more cautious must be taken. At this time, the disadvantages of gold become advantages. It doesn't generate cash flow, but it doesn't consume cash flow either. Although it doesn't increase in value, it can basically maintain its value.

When the situation is in turmoil, gold has advantages that other assets do not have: paper money can be instantly invalidated, rights and interests may not be recognized, and real estate cannot be taken away.

In extreme cases, it can save your life. Gangsters in Southeast Asia will definitely make a lump of money when they have the conditions, and one of the considerations is that if they want to run away, they can have an asset to save them. Similarly, during the Republican period, wealthy people had to allocate "small yellow croaker", while drug dealers in South America preferred broken diamonds.

In troubled times, love is more than Jin Jian is art, and Jin is more realistic than love Jian.

The current round of gold bull market has a complex and profound realistic background.

In the era of credit money, the hidden danger of over-issuance of money has always been there, and it is not advisable to have too high expectations for the central bank's discipline. Some economists invented MMT (Modern Monetary Theory), which advocates the issuance of money to ensure full employment and economic growth, and does not hesitate to break the fiscal balance for this purpose. In fact, this provides a theoretical basis for the central bank's over-issuance, but in reality, it is easy to lead to runaway inflation and a decline in financial stability.

At present, the US dollar is still the most important settlement currency and foreign exchange reserve currency for international trade. This means that the United States has the right to mint money around the world, and can calmly harvest the world's wool. Without anchors, how can we ensure that the United States does not over-issue currency? How can countries that actively promote currency internationalization gradually weaken the hegemony of the US dollar?

Even if gold does not return to the gold standard, it is still a relatively reliable choice. The de-dollarization of some countries will not stop, and gold is a product that the central banks of these countries are buying vigorously.

For those regions with strict foreign exchange controls and Bitcoin banned, gold is the only legal global allocation asset accessible to ordinary people.

As a measure of confidence in the world's turmoil, gold is a relatively certain choice in uncertain times, both for central banks and for individuals.

To sum up, whether gold can be bought after a big rise, the short-term trend cannot be reversed, and the medium and long-term depends on each investor's judgment on the economic situation and the prospects for globalization. (This article was first published in Titanium Media App, author | Hu Runfeng, editor - Liu Yangxue)