Gold has always held a special place in the psychology of investors, historically serving as a refuge in times of uncertainty. However, the recent rise in its price —which has exceeded $4,000 an ounce with a 50% increase so far this year— forces us to ask: Is this euphoria a movement based on logic or simply on instinct?
Bloomberg economist Allison Schrager, in her recent analysis, offers us a dose of reality: gold is not a risk-free asset. Her warning is clear and forceful, and it is crucial for anyone considering adding it to their portfolio.
Volatility Undermines Security
The main argument is simple: a "risk-free" asset should maintain its value in a stable and predictable manner. Gold, on the other hand, is notoriously volatile. Its price does not move in response to classic economic fundamentals in the same way that stocks or corporate bonds do.
Schrager insists that the current strong appeal of the yellow metal is more a reaction to global instability (wars, inflation, interest rates) than to a rigorous financial assessment. In other words, people buy gold when they feel fear, making it a barometer of panic, not of investment solidity.
What Does This Mean for the Investor?
Do Not Confuse It with Cash: Gold does not generate cash flow, dividends, or interest. It is a speculative store of value. While it can serve as an excellent hedge against long-term inflation, its short- and medium-term performance is erratic.
Liquidity Risk: In times of true crisis, your ability to quickly sell large amounts of gold at the desired price may be limited.
Opportunity Cost: Capital invested in gold is not working in productive assets that could generate higher and more predictable returns (albeit with greater systemic risk).
Caution-Based Strategies: 3 Recommendations
Since gold is an asset that plays with market psychology, it must be handled with caution and a clear understanding of its speculative nature. Here are three practical recommendations for managing risk:
1. Distinguish Between Hedging and Speculation
The key is intention. If you buy gold, ask yourself: Am I buying it as a long-term hedge (an anti-inflation insurance for a small portion of my wealth) or am I speculating (hoping the price rises quickly due to current panic)? Keep the allocation of non-productive assets (like gold) at a very conservative percentage of your total portfolio.
2. Prioritize Diversification of Productive Assets
If the goal is protection against risk, the best defense is a truly diversified portfolio. Instead of putting great hopes in a single metal, make sure your wealth is distributed among: Income Assets (Bonds), Growth Assets (Stocks), and Real Assets (Real Estate). The volatility of gold becomes manageable only when it is a small piece of a larger, more robust puzzle.
3. Avoid Fear-Driven Impulse Buying (FOMO)
The record price of gold attracts late investors who fear missing out on profits. If the only reason to buy gold is that it has gone up a lot, you are acting on instinct, as Schrager warns. The smartest investment decisions are made calmly, adhering to a predefined strategy, and not in response to market euphoria or panic.
Gold can be a valuable tool for diversifying a well-built portfolio, but we must rid ourselves of the illusion that it is a "safe bet" or a substitute for cash.
What do you think? Do you still see gold as the ultimate safe-haven asset in the current economic landscape, or do you agree that its recent rise is pure illusion?
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