Hyland: Gold Is Not A Safe Haven
Gold has proven to be anything but a safe haven for investors this year. Prices for the metal fell almost 30 percent in the first half, the largest decline since 1983, according to the CME Group Open Markets report. It’s now trading at $1,265.80 a troy ounce, or more than a third below the cycle high of $1,921 reached two years ago.
In a conversation with IndexUniverse staff writer Hung Tran that touched on the yellow metal, United States Commodity Funds CIO John Hyland explained why he thinks gold isn’t a safe haven and why it’s not even a commodity.
IndexUniverse.com: What’s your take on gold as a currency versus a commodity?
John Hyland: I think the preponderance of evidence is that it’s clearly a currency or a monetary device. Production and consumption, which are obviously key to any physical commodity, are just minor parts of the gold story. It’s not really consumed. So I think it’s a monetary device.
IU.com: Is gold really a good hedge against other asset classes?
Hyland: There are a few reasons why you might want to hold gold. And then the question is, Are there better things you could hold other than gold? Otherwise, don’t hold gold at all. There are a couple of commodities that actually have stronger correlations to inflation and strong long-term, positive real return, real price appreciation. Crude oil is a better proxy. Platinum is a better proxy. Tobacco is a better proxy, although difficult to access as an investment category unless you buy a tobacco company.
If I were worried about inflation, I don’t think I’d use gold; I think I’d use a basket. If you’re worried about monetary disruption or financial crisis, gold might pop if there’s some repeat of 2008. But I think I’d almost prefer a far-out-of-the-market option like on the S&P 500 than to actually own gold.
Then, if you really go to the far extreme of a breakdown in public order, why would you want to own gold? Wouldn’t you be better off owning boxes of 9 millimeter ammo? I think the benefits of gold tend to be oversold. I think you could do a better job, depending on which of the two or three risks you’re worried about with other vehicles.
If CalPERS is taking hedgies out, ETFs may be coming back in.
As valuations grow uncomfortably high, ‘quality’ ETFs makes more sense—if you can figure out just what quality means.
‘Smart beta’ almost surely means loss of more market share for active managers.
Be careful of your assumptions (and headlines!) about volatility ETFs.