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As I wrote below, gold has been a very dubious hedge for equity market crashes. As a matter of fact, in the last 2 decades, gold sold off with the initial marke
by short_sells_poo 7y ago
As I wrote below, gold has been a very dubious hedge for equity market crashes. As a matter of fact, in the last 2 decades, gold sold off with the initial market panic and it only started appreciating with the equity recovery.
Truth is that very if (if any) people understand gold, and it's use as a safe haven for market panic is highly questionable. It has certain correlation regimes with bonds and inflation, but given the sparsity of data on market stresses (they are by definition rare events), it is very difficult to draw any sound conclusions.
I explicitly exclude any events pre-2008, as the world now is completely different. The only thing that perhaps translates from the pre-2008 environment to our current situation is the magnitude of the selloffs, but everything else is different.
- duxup 7y agoIs it fair to say that gold is just as speculative and prone to panic as ... most things?
- short_sells_poo 7y agoYes. Gold has become (or always was?) as much a speculative asset as pretty much anything else. It's difficult to find a safe haven asset in any crash, because there are so many feedback loops and non-obvious relationships. Ex post we see of course many asset managers come out of the woodwork beating their drum on how their expertise allowed them to buy the safe haven asset that happened to work in a crash. This is survivorship bias at it's clearest. After 2008, central banks managed to stop every single market stress with a firehose of money. Eventually this became an actual trade. Every single selloff was bought heavily by traders because of the near-certainty that CBs will provide a hard backstop to the panic. Until last week, where a new regime is starting emerge perhaps where CB tools have suddenly stopped working, at least short term. Perhaps once the selloff stops, the massive money supply support will re-accelerate the buying, but right now we are in uncharted territory. The current market behavior is unprecedented. We saw the 3rd biggest one day loss in the entire history of S&P 500. Intraday volatility is through the roof.
- cercatrova 7y agoYes. Only cash is king.
- quantgenius 7y agoEvery crisis is a little bit different than the previous crises but the world is _never_ completely different. It's not the same either but it rhymes. Excluding all pre-2008 events because "the world is completely different" is dubious at best. Believing it's different this time is kind of a classic fallacy among traders who have only been around for one bull market.
- robocat 7y agoEverything is relative: if gold drops less than stocks (for example) then gold is good to have. The USD could easily start shifting into high inflation, or exchange rates could decrease significantly. USD has traditionally been stable, but past history doesn’t always predict future performance.
- im3w1l 7y agoGold isn't for equity market crashes. Gold is for when the pentagon bombs the white house and says there will be "some changes".
- adrianN 7y agoI thought whisky, tobacco and tampons were for that situation. Or maybe toilet paper.
- roenxi 7y agoEveryone holds gold for different reasons; but gold is a great wealth preserving tool. If you own gold, you are going to preserve somewhere between 25% and 100% of your wealth over time in a way that cannot be claimed for stocks or currency. Someone who held a US dollar for 100 years has wasted their time. Someone who held an ounce of gold still has about as much purchasing power now as then (probably more with the march of technology).