Just Sayin'- Gold Ain't a Fear Hedge
Be Afraid of Getting Out
While we disagree with the concept of Gold as a valid fear hedge, we do not disagree that market participants view it as such. Our point is merely that Gold, an imperfect hedge for almost every issue concerning a lack of faith in human judgment, is a poor hedge for short term "flights to safety" or "fear hedging" simply because it is not a large market.
When it takes only a trillion USD to corner the gold market and that same amount trades daily in other markets, you cannot expect to be safe piling money into gold as if it were some 15 minute parking lot of safety. Gold is a roach motel upon exit if you are trying to beat the herd.
Gold: Not Perfect, but Perfect for You
In a world where there are custom financial hedges made for every specific risk and marketed in ETF form, there is only one generalist product that covers risk in all foibles of human kind making those instruments of mass destruction., Gold. We'd rather be 70% hedged against everything than 100% hedged against a "nikkei rally in italian bond terms" using some triple vol etf.
Investing in Pet Rocks is Dumb
We also strongly disagree with any characterization of gold as an "investment". Investments are vehicles in which one expects a rate of return. The investment community should not consider gold as an investment any more than it considers money an investment. Investments offer a potential return based on value added to raw materials or machines used.
Suggested Gold Holding Time Frame: Do you really have to ask?
Gold is a hedge against paper FIAT debasement, and as such it should be held as long as one holds, earns, or spends, paper currency. The holding period is forever. The percentage held in gold is the variable.
Gold is also a trade-able asset and thus can be a wealth creator. We believe every bank that touts gold as a safety mechanism knows this and trades gold counter the momentum types.
Barbarous Relic or Timeless Store of Wealth? YES
So for our 2 cents: Gold is not an investment. Gold is not a hedge against fear or a flight to safety, gold is not to be treated as a reliable hedge against stock market corrections. Gold is a hedge against protracted bear markets that are underpinned by FIAT debasement damaging corporate earnings. And gold is something to trade. Finally, Gold is not officially money. That is to say gold is not money by FIAT (order), but is de-facto money in government hands. It is also the only universally accepted means of exchange across nation-state borders. It is a store of wealth
Golds is money that is all. Gold is not currency again... yet
Echobay Partners, LLC