El-Erian: Why Gold Is Less Of A Haven These Days

Authored by Mohamed El-Erian via Bloomberg.com, 

Its status has been eroded by unconventional monetary policy and cryptocurrencies.

Having waited patiently for the “any-minute-now” moment, gold investors are taking comfort from the recent rise in price in response to geopolitical tensions. Yet the responsiveness of gold, as well as the overall price, appears weaker than would have been expected from historically based models -- and for understandable reasons. The precious metal’s status as a haven has been eroded by the influence of unconventional monetary policy and the growth of markets for cryptocurrencies.

Gold prices rose almost 1 percent on Tuesday morning as part of the risk aversion triggered by yet another brazen North Korean missile launch over Japan, together with uncertainty as to how the U.S. may respond. But trading below $1,330, the overall response of gold prices to the last few months of heightened geopolitical risks has been relatively muted, particularly as the 10-year Treasury bond, another traditional haven, saw its yield trade down to below 2.10 percent that same morning.

Two immediate reasons come to mind, one related to several assets and the other more specifically to gold.

First, and as I have discussed in several Bloomberg View articles, the prolonged pursuit of unconventional measures by central banks has helped meaningfully decouple asset prices from underlying fundamentals. In such circumstances, historically based models will tend to overestimate the reaction of asset prices to heightened geopolitical tensions -- including the fall in risk assets such as equities, or the rise in gold.

 

Second, a portion of the traditional buyer interest in gold has been diverted to the growing markets for cryptocurrencies, which are also benefiting from a general increase in demand. As such, the returns to investors there have been significantly greater, sucking in even more funds.

The message for investors in both gold and multi-asset-class portfolios is clear.

While continuing to play a role in diversified market exposures, gold is less of a risk mitigator and asset-class diversifier, for now.

Luckily for investors, the need has also been less pronounced, given that ample market liquidity has boosted returns, repressed volatility, and distorted correlations in their favor.

But this is not to say that gold’s traditional role will not be re-established down the road. After all, central banks are in the later stages of reliance on unconventional monetary measures and, given this year’s spectacular price appreciation, cryptocurrencies are more vulnerable to unsettling air pockets.

Comments

The Black Bishop nope-1004 Wed, 08/30/2017 - 15:32 Permalink

So what is the COMEX trade-ratios to these days? 200 buyers to 1 ounce gold? 300? Everyone -should- know the precious metal PAPER market is pure fucking ponzi. The day the COMEX breaks is the day precious metals breaks OUT and UP by a mile. Digital currencies is a ruse and a banker instrument. And upgrade to classic fiat toiletpaper. Now you have digital toiletpaper that you cant even wipe your ass with. The only positive is that we can still buy precious metals at what I perceive as HUGE discounts.

In reply to by nope-1004

wulf Honey-Badger (not verified) Wed, 08/30/2017 - 16:04 Permalink

Anyway, cryptos and precious metais are completely different types of entities.Nothing has usurped gold for millennia as a globally-accepted medium of exchange or store of value, and I don’t think bitcoin will do so either. Gold can’t be altered. I don’t need to rely on a functioning internet. I don’t need a computer or electricity. Gold isn't a computer protocol that can be changed or "forked". There is not a "gold cash", "lite gold", or goldetherium.I'm a X-generation that lives in Brazil. I'm still in my 30's but I saw lots of currencies die (cruzeiro, cruzado, cruzado novo, cruzeiro - again, and cruzeiro real). Storing foreign currency, real state, land, stocks, gold - real things - saved many people's wealth. Even in the Amazon jungle people will recognize gold and will accept it. It's not an abstract thing or too volatile.Some people here mock "gold bugs" saying gold hasn't made them rich, as if that was the purpose of gold. Gold preserves wealth, and that's a lot in difficult times.

In reply to by Honey-Badger (not verified)

SeuMadruga wulf Thu, 08/31/2017 - 16:40 Permalink

Kudos, countryman ! And eventually gold'll save us again, specially brazilians, as their (our) current monetary base plus aggregates have already been bloated many fold since the relatively recent inception of the "Real" (BRL) in July/1994, date from which its compounded official devaluation already ammounts to over 85% for the money purported to have finally "tamed" chronic brazilian inflation (even when considering the present economic depression here).

In reply to by wulf

Iskiab Wed, 08/30/2017 - 15:22 Permalink

Gold will have value, but I'm not sure if I agree about cryptocurrencies being a substitute. It makes logical sense, but with the proliferation of cryptos these days it's acting more like a bubble than a hedge.

ET (not verified) Iskiab Wed, 08/30/2017 - 15:50 Permalink

Crypto is a ledger that can be tracked by the powers that be. They are not coins and despite the Gold imagery used they are not Gold.

When they show excitement for it in pursuit of the cashless society, the time is running out to get Physical Gold and Silver.

In reply to by Iskiab

DogeCoin Wed, 08/30/2017 - 15:22 Permalink

Gold's traditional role will be re-established when we get rid of the futures market that sells gold they don't have to people who don't want it and can't afford it.

Grave DogeCoin Wed, 08/30/2017 - 19:29 Permalink

currency backed by metals is completely useless and always fails.

the only way metals are useful is if the native coins are circulated in the economy.

it's not actually possible for this to happen unless civilization devolves back to the dark ages because metals have awful granularity and high friction in use.

due to this, they've already failed as a currency in modern society, every time

In reply to by DogeCoin

FreeShitter Wed, 08/30/2017 - 15:25 Permalink

Wish low I.Q morons like this fuck would stop comparing metals to cryptos. They dont compete with eachother like everyone thinks. Diversification is always best when it comes to parking your money. Rental properties, SOME crypto, some metals, some land, some weapons, some night vision gear, lots of ammo, water purification, learn to grow your own food.....and detach yourself from the system as best as possible. 

SeuMadruga AlphaSeraph Wed, 08/30/2017 - 21:59 Permalink

Considering the unbelievable, mind boggling expansion of both base and multiple (Mx) fiat-monies worldwide specially since 2009 together with the still relatively minuscule marketcap for all cryptocurrencies combined, plus the most blatant pm's price manipulation through futures contracts and other criminal ruses/schemes, I guess that degree is "virtually" zero...

In reply to by AlphaSeraph