The gold rally

Katie Martin (0:09)

Gold is one of those things in markets that really sparks an argument. Some people consider it to be a pointless pet rock, others as the only true store of value. The bickering about this is honestly endless. Either way, the shiny stuff is having a moment with prices leaping up to the highest on record, around $2,500 an ounce. Today on the show, let's settle this once and for all. Is gold just for weirdos?

That's the question though.

Rob Armstrong (0:42)

Yes, that is fair. That's totally fair, Katie. And like certain other asset classes, gold does bring out the weirdos. However, just because-

Katie Martin (0:52)

Wait a minute, wait a minute. I need to do the this is unhedged bit.

Rob Armstrong (0:55)

Okay, do it.

Katie Martin (0:56)

This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist here at the FT in London, and I'm pretty firmly in the camp that Gold is like, annoying. But by the magic of modern technology, I'm joined down the line from New York by my esteemed associate, Rob Armstrong, captain of the Unhedged newsletter, and somehow now kind of Gold curious?

Rob Armstrong (1:22)

Yes.

Katie Martin (1:22)

I mean, Rob, are you?

Rob Armstrong (1:24)

I agree with you, Katie, that Gold brings out the conspiratorial tin hat wearing types in the world. However, just because you're paranoid doesn't mean the world is not out to get you. In other words, there is a case to be made that the sort of odd people who tell us we're foolish to own stocks or government bonds and have their money in ingots in a safety deposit box or hidden in their house may be on to something. This year, the value of the stuff has gone up more than stocks. So who's the weirdo now, Katie?

That's what I'm asking you.

Katie Martin (2:02)

I mean, yeah, the tin foil hat crew are doing like really nicely out of this trade now. But why are people so attached to this as a thing to invest in?

Rob Armstrong (2:12)

I think there is a constituency in markets that really distrusts government in general and central banks in particular. So the government is irresponsible in that it borrows all this money and props up the economy at the wrong times and so forth. And the central bank is irresponsible in that it prints all this money. And there are people, rightly so, who want to be in an asset that is safe from those real or perceived manipulations. And gold being a very, very ancient store of value and one where the supply cannot be controlled by governments, or at least not controlled very well, it's an asset that sort of fits the bill.

Katie Martin (3:00)

There's a whole set of questions there, right, around, is it actually an asset, is it a currency?

Rob Armstrong (3:06)

Yes.

Katie Martin (3:06)

I mean, good luck buying a six-pack of beer with it down in the supermarket. So from that point of view, I'm going to say no.

Rob Armstrong (3:12)

Here's one way to think about it. It's not a very reliable currency. So between about, like just for a recent example, between about late 2011 and late 2018, the value was just down to flat. It depreciated, you lost buying power, and that's a fairly long time. That's six or seven years when your so-called currency is doing nothing for you, right, or less than nothing for you.

Katie Martin (3:40)

Yeah.

Rob Armstrong (3:41)

But one characteristic of gold which justifies the people who are real partisans, is that when the poop really hits the fan, when the market is in real crisis, 2001, 2008, the end of 2018, those first scary moments of COVID, gold really does tend to hold its value, and indeed, it generally appreciates. So when people are panicked and they've given up on rationality and the future looks very dim, gold does shine. So that's a characteristic you might want in a portfolio.

Katie Martin (4:19)

Okay. Is the current environment really that bleak? Like gold has had a great run this year. Like I say, it's up in nominal terms at least, to close to a record level.

Rob Armstrong (4:29)

Yes.

Katie Martin (4:30)

I don't see a pandemic. I mean, you can certainly point to parts of the world that have got hideous geopolitical situations going on, but it's not like we're on the brink of World War III. I don't think unless there's something that these people know that I don't. Like, I just don't get that the current environment is bad enough to justify what's going on with the gold price.