{"id":338,"date":"2009-07-08T20:10:00","date_gmt":"2009-07-08T20:10:00","guid":{"rendered":"https:\/\/clusterfamilyoffice.com\/blog\/?p=338"},"modified":"2009-07-08T20:10:00","modified_gmt":"2009-07-08T20:10:00","slug":"boquerones-fritos-10-el-oro-como-refugio","status":"publish","type":"post","link":"https:\/\/clusterfamilyoffice.com\/en\/boquerones-fritos-10-el-oro-como-refugio\/","title":{"rendered":"Fried Anchovies (10). Is gold a safe haven?"},"content":{"rendered":"
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Continuing with the topic of gold, which seems to provoke quite a few conflicting views, we are going to publish below a comment by ManuelMad on our previous articles in *La Febr\u00edcula del Oro* (Part One<\/a> y second part<\/a>). An article containing some very interesting reflections on the suitability of gold as a safe-haven investment. Here is the full text: <\/div>\n

\u00abIt is in times of economic uncertainty that the memory of gold resurfaces. The monetary stability provided by the classic gold standard is very much on the minds of investors and savers across half the world, who watch as monetary authorities perform sleight of hand with their money. Ever since the abandonment of the Bretton Woods system \u2013 what little remained of the gold standard \u2013 investors and savers have believed, or felt, that the best hedge against the shambles caused by their authorities was the yellow metal.<\/span>

I want to analyse this point in detail, as I believe it is of the utmost importance. Firstly, I would like to briefly outline the characteristics that have made gold the best form of money of all time; and secondly, what interests us most as investors or wealth managers is the concept of liquidity and how gold is the most liquid asset in an economy. We will therefore conclude by stating that gold is not an investment, but rather a monetary standard \u2013 the best of all time \u2013 and, ultimately, a guarantee of liquidity.<\/span> <\/p>\n

I shall not dwell on why gold is the best possible form of money, as that is not the aim of this article, but we can say that gold possesses excellent properties for use as money: its relative scarcity, its uniformity, its malleability, its ductility, its high degree of divisibility, and the ease with which it can be transported, stored and preserved. We can state categorically that it meets these requirements to be a sound monetary standard.<\/span> <\/p>\n

<\/span>\"\"<\/a>Now we come to what I believe is the most interesting part of the article, namely the question: why is gold the most liquid asset in the economy? This is a topic that most economists from the main schools of thought have overlooked, having devoted themselves entirely to modelling risks using variables that are difficult to estimate. To understand why gold is the most liquid asset, we must look back to the marginalist theories of Carl Menger, Walras and Jevons, who laid the foundations for the marginalist revolution. We might say that the marginal utility of a good decreases as its availability increases and increases as its availability decreases. This explains why diamonds cost more than water, even though water is essential for life and diamonds are not. <\/span> <\/p>\n

Therefore, based on this concept, we can say that one good is more liquid than another when its marginal utility decreases more slowly. The most liquid good in the economy would be one with a constant marginal utility \u2013 which is impossible \u2013 but we can state that gold is the good whose marginal utility decreases most slowly. The concept of liquidity can be defined in two dimensions: an interspatial dimension \u2013 that is, we say that a good is highly liquid when its marginal utility decreases gradually as its quantity increases; and an intertemporal dimension \u2013 that is, a good is highly liquid when its utility increases gradually as its quantity decreases.<\/span> <\/p>\n

<\/span>\"\"<\/a>This should give both investors and managers pause for thought regarding the liquidity risks they are taking on in their asset pools. <\/span>The crisis we are currently experiencing is partly due to the deliberate or inadvertent neglect of these concepts, both by individual and institutional actors. The banking sector ought to be aware of the risks involved in investing for the long term whilst taking on short-term debt, and even more so when dealing with wholly illiquid assets which, at the time of liquidation, are subject to significant discounts. John Exter\u2019s inverted pyramid clearly illustrates this concept. Current approaches to risk assessment should be carefully considered and refined.<\/span> <\/p>\n

<\/span>\"\"<\/a>So, having said that, can we say that gold is the best hedge against inflation? The answer at this stage should be a resounding NO. Firstly, because the inflationary process orchestrated by central banks through credit expansion benefits some more than others, meaning that certain sectors can easily generate returns that outstrip inflation; and secondly, and most importantly, there is no better hedge than holding a portfolio of value-invested assets. This is where Value Investment and our friend Benjamin Graham come in. <\/span>There\u2019s no better refuge than a razor company used by people across half the world every day; there\u2019s no better refuge than a company that has been making the best children\u2019s shampoo for as long as anyone can remember \u2013 and which even adults use, There\u2019s no better refuge than that refreshing drink you can find in a place where there isn\u2019t even any water<\/span>.<\/span> <\/p>\n

<\/span>Indeed, dear readers, that is the best protection against inflation we can have. I should point out here that, for any of you who are going to read Graham\u2019s *The Intelligent Investor*, you should pay particular attention to the chapter where he discusses how to protect yourself against inflation. But the core of his advice is sound: invest in ordinary shares.<\/span> <\/p>\n

Gold as an investment would only make sense as a last resort for liquidity in a process of monetary destruction<\/span>, that is to say, in the event of hyperinflation, since, as we have seen previously, it is the most liquid asset in the economy and, as such, suffers less of a discount when it comes to realising its value.<\/span> <\/p>\n

The conclusion the reader should take away from this article is that \u00bbThe best way to protect oneself is through value-based investment; gold has been and will remain the best monetary standard of all time, and those of us who defend it will continue to fight to restore sovereignty to savers and consumers of goods and services. But we must be clear that these are two entirely different things.\u2019<\/span><\/p>\n

ManuelMad
<\/span><\/p><\/blockquote>\n

To all this, I would add that as long as we retain hope in the system, the speculative aspect of gold should be our main motivation. If, on the other hand, we lose all hope, it will matter little whether the price of gold rises or falls, as it will be a monetary standard without currency. And as the saying goes: where there is a standard, the sailor is not in charge.<\/div>","protected":false},"excerpt":{"rendered":"

Siguiendo con el tema del oro, que parece que genera bastantes opiniones contradictorias, vamos a publicar a continuaci\u00f3n un comentario de ManuelMad a nuestros anteriores art\u00edculos de La Febr\u00edcula del Oro (primera parte y segunda parte). Un art\u00edculo con reflexiones muy interesantes sobre la idoneidad del oro como refugio inversor. \u00c9ste es el texto completo: […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[],"class_list":["post-338","post","type-post","status-publish","format-standard","hentry","category-sin-categorizar"],"_links":{"self":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/338","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/comments?post=338"}],"version-history":[{"count":0,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/338\/revisions"}],"wp:attachment":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/media?parent=338"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/categories?post=338"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/tags?post=338"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}