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Gold Price Today | Is Gold a Good Investment?
Is gold a good investment? In fact, at the same time, it is one of the most popular and well-known commodities in the world. Gold is among the safe investment instruments with low risk in the long run, as it does not suffer any physical damage and preserves its value even if it is structurally deformed.
Frankly, gold has had a tough year this year. But if you compare it to long-term bonds, which are one of the closest things you've ever compared, gold held up better than most long-term bonds. So it didn't rise as several people had hoped but did some damage to checking your portfolio or net worth.
There were many concerns about stock valuations, and how expensive they were. And I thought, okay, that's a legitimate concern. There are very valuable stocks out there. There are also cheap ones. But I said what was more remarkable was what was going on in the bond market. In most places in Europe, you had a lot of negative yield debt and then basically zero yield.
In Japan, and the United States, we were near zero at the short end of the curve, slightly higher when you go out. And super low-yield debt. Most were below inflation. And the idea was that the debt of inflation would never come back.
One thing I looked at from historical research was that normally when countries are heavily indebted at the sovereign level when they have very high debt levels relative to GDP, they go beyond the event horizon where that debt will be repaid. purchasing power terms. TRUE? And of course, different countries will handle this differently depending on their debt profile.
It's an emerging market and if your debt is called a currency you can print it like a dollar or if you go back far enough and some countries want gold, compensation, things like that, they can't print these things and so they can print directly. failing to fulfill or restructuring some of its obligations, which is another way of saying default.
Whereas if debts are in their currency, it normally happens with inflation, right? Financial pressure keeps yields below the inflation rate. And the genre of the post-war era in Europe was the 20s in the United States and much more. Again, it was the 40s when much of this government debt was discharged. And I started to see a similar dynamic building here, and to me, none of the risks were priced in. I think some are better priced now. But I still think it's a historic bond collapse.
Globally, tens of trillions of dollars have been in paper wealth and have been wiped out from the government bond market, let alone corporate bonds, which are all other types of bonds that correlate at a higher level with these yields, and going forward, let's say Treasures, they look less dire than they are.
But generally speaking, I think most sovereign paper fortunes are not going to do very well in terms of purchasing power, for example, in the next decade. There is a growing problem that, ironically, no matter how big the US dollar market is, it is no longer big enough to serve the entire world. After the post-war period, when the system was built with the dollar and the treasury as the core of the system, the United States had over 40% of the global GDP. It was like the last country standing.
And it held all its gold, its entire army, and its entire economy, its industrial capacity. And since everything was rebuilt and then multiple countries came to power, we now live in a more multipolar world, right?
So the United States is close to 20% of GDP, depending on how you look at purchasing power. The time will be less than that. A nominal dollar is just over 20% if you like terms. But it has certainly reduced its share in the global economy. However, it still has a very large share in this global payment and reserve volume. And I think that's jamming some parts of the world. And now obviously for geopolitical reasons too. But even before some of the events of this year, I think there is an acknowledgment among many countries that they want to diversify their payment and reserve situations.
This is different from saying that we don't want to own any treasures, but that we want to diversify the types of assets we have. And then they had an interest in some of the biggest countries and some of the biggest money blocs, like being able to buy oil in their currency and then maybe hold these government bonds to these oil producers. So you have a kind of circular economy, let's say China can buy oil from Russia, and Russia can take and hold that money.
They can also go back to the Chinese market and buy electronics and what China produces as they are a big manufacturer. And I think that's the world we're still heading toward, in a way. A more polarized world. And then I think this year added some fuel to the fire because now every country realizes that where they hold their reserve assets, there is counterparty risk.
So I think there are a lot of things that are not good for the bond market. And if you're an oil producer or an Oil consuming country, and you have reserves and those reserves are depreciating relative to oil, for example, some kind of fixed asset, that's a melting ice cube. No oil manufacturer does not want to sell its limited resources and then put them into melting ice cube assets.
At the same time. If you are a country that holds these reserves because of the idea that they can hold their value in the future and that you can buy oil or other imports with them for example, it reduces cheapness if it is a decreasing value, like the purpose of the reserves. And I think we're experiencing some kind of transition here.
Some people study these nuances of the gold market on a much deeper level than I do. But the general trend we're seeing is, frankly, gold moving from west to east, actually, right?
In other words, most of the physical gold goes to China, goes to India, goes to Turkey, goes to Russia. As you pointed out, many countries of the Eurasian type are brick nations. And so there is a general exodus of the physical metal, where some cultures either have a trade surplus to absorb it or their societies value more, whereas many Western investors have somehow lost interest.
And many Western countries are already running these deficits. So there is a general flow that corresponds to the rise of Asian power as an economic power in general. And so we see these interesting dynamics in the gold market. And frankly, it's been a long story where more than one person might think they were exposed to gold and not gold. For example, if things hit the fans if you put the cards on the table, who has the gold?
You know, a lot of people think they have gold, but if they made these claims all at once, some of them would be without gold. And I think the market goes through this process to get things done. And frankly, this could have long-term effects on price, right? Because if you can increase the demand-supply without increasing the supply of the underlying, this can be negative for pricing.
Whereas if you have some sort of real perception of where the gold is and who it belongs to, it can be built for that price as long as there is demand. I think that's a trend we're seeing. And that's interesting because gold has had a rough year this year, but if you compare it to long-term bonds, which is one of the closest things you've come across, gold has held up better than most long-term bonds. So it didn't rise as many people had hoped, but it did do some damage control on a portfolio or net worth where you have these special conditions.
That's something I follow on a larger scale, not necessarily focusing on these refineries, but several energy-intensive industries have been voluntarily shut down or given the same, due to energy shortages in Europe, for example. shutdown order. And you've seen it in Fertilizer companies. You've seen this with multiple types of metal producers and consumers trying to share their energy whenever possible. And that can obviously have an impact, and the broader stuff often comes up during these idiosyncratic sorts of events, right?
The idea of a marketplace where people claim something and never make physical deliveries is kind of a game, right? But then if there are one or more occasions in history where people say "wait a minute," we want it. Some kind of test on this system to see how this goes?
That's why some countries keep their gold outside their jurisdiction and some eventually decided to send this gold back to their country. And to the extent that they continue to buy gold, they often want some to want to bring it to their borders and private establishments in those countries. I think as we move towards a more multipolar world, some kind of east and west may be relying less on each other, or many different parts of the world trust each other less. This custody issue is more important.