Global investors looking for an asset class to store value are increasingly turning to other options like real estate or fine art
Back in Roman times, an ounce of gold bought 300 loaves of bread, roughly the same as it does now. Two ounces would buy you an acre of the best farmland in Alberta in the 1930s; incredibly, it could do the same until very recently.
It was this capacity for holding its purchasing power and moving in the opposite direction of other asset classes that long made gold the ultimate safe haven, something investors going back five centuries to Jakob Fugger the Rich have recommended one hold in one’s portfolio.
Only gold has turned out to be a terrible hedge this year. Amid the worst market volatility since the Great Recession, it’s fallen in value along with stocks and bonds. A growing number of prominent investors are concluding the yellow metal has lost its status as a go-to asset in times of trouble—perhaps for good.
Even some long-time gold bugs are beginning to have doubts. “Gold has been dead since November of 2011. If you’ve owned gold in [U.S.] dollar terms it has been a terrifying trade,” admits Dennis Gartman, the Hong Kong–based publisher of The Gartman Letter.
“Gold today clearly has lost its lustre,” says Angus Watt, managing director with National Bank Financial. He notes how, in the wake of the 2008 financial crisis, the safe haven has proven to be U.S. treasuries and U.S. currency. And those will be the assets investors will gravitate to the next time a crisis hits, he says.
“Gold today is nothing more or less than a commodity, and we could have a debate whether it’s a commodity or a currency without an interest rate,” Watt continues. “People don’t choose between the U.S. dollar or gold; it’s the U.S. dollar or the euro. Gold today is no more of an alternative currency to global traders than the Canadian dollar is.”
Gold as just another commodity should be a scary prospect for its holders, in that it doesn’t get consumed like oil or soybeans. Only about a third of what’s produced by the mining industry is used for jewelry and industrial purposes.
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