“There is something a bit odd about the value we attach to gold. Throughout history people have gone to extraordinary lengths to get their hands on this most precious substance which is strange because it is isn’t particularly useful for anything…but it has got one thing going for it and that’s that it is incredibly rare”. Professor Brian Cox, Wonders of the Universe
Gold is one of the best performing asset classes in 2016, up +26.99% YTD to $1,349.09. The yellow metal has regained its shine this year as more market participants have become concerned about the monetary policy endgame, with increased volatility in financial markets adding to its allure as a safe-haven asset.
Determining an intrinsic value for gold is next to impossible. Its value lies in its scarcity. Consider the fact that all of the gold ever mined in human history would only fill three Olympic sized swimming pools. What is even more mind blowing is the origin of gold and the reason for its rarity.
As Professor Brian Cox explains in his amazing documentary series, “Wonders of the Universe”, heavy metals like gold are scarce because they were formed at extreme temperatures – 100 billion degrees – when stars multiple times the size of our sun died in a giant explosion known as a supernova, the most powerful explosion in the universe. (See video clip)
Of course, while the most valuable characteristic of gold is its scarcity the price assigned to this precious metal is a function of demand. This year gold prices have risen on increased investor demand, implemented in some portfolios as a safe-haven alternative to negative yielding bonds.
Gold is also perceived to be an insurance policy against central banks and governments eroding the value of paper currency. Like the universe, the global debt bubble continues to expand, meanwhile central banks are moving deeper and deeper into experimental territory. In effect, gold is a hedge against an economic supernova, a bursting of the global debt bubble.