Gold, Doomsday Currency?

I am sorry, I could not contain myself.  I got a call today from a financial journalist asking me if gold is “the” asset for the doomsday portfolio.  I took this question very seriously after all if you are reading the news we are on the brink of one.  I weighted my words very carefully.  And answered: No!   You need to diversify into canned food and guns.  I added, as I learned by watching the TV-show Jericho – salt is the ultimate commodity you should own: 

 “Salt has more applications than virtually any other mineral. Besides being a dietary necessity, salt can be used as a preservative, an antiseptic, a dentifrice, a cleanser, an abrasive, a fire-retardant, a defroster and a deodorizer. The list goes on and on.”

   

The problem with gold is that it is very hard to determine its worth.  It is only worth something if market participants perceive it is worth something.  Unlike bonds or stocks, it is not a cash flow producing asset thus traditional valuation metrics cannot tell you if it is cheap or expensive.  You look at Microsoft, you may disagree on the assumptions that you put into the discounted cash flow model, but it is worth somewhere between $20 and $50.  It is analyzable.   Gold is only worth something if people consider it to be a store of value – the doomsday currency.  But if it lets people down even once, it is done!  Here is what I wrote about gold in my book.

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