We should listen to what gold is really telling us
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Like Apple, valuation has become divorced from fundamentals, writes Mohamed El-Erian
There is no better topic than gold to polarise an investment discussion. So the recent sharp drop in the metal’s price has pushed to fever pitch the debate between two camps with deeply held convictions: those who view gold as overvalued and lacking both income and capital appreciation attributes; and those who feel it is only a matter of time before others appreciate again gold’s unique role as an antidote for virtually any economic ill that could hit a diversified investment portfolio.
As interesting as this debate is, it understates the potential significance of what has taken place. The recent volatility speaks to a dynamic that has played out elsewhere and, more importantly, underpins the gradually widening phenomenon of western market-based systems that have been operating with artificial pricing for an unusually prolonged period.
The consensus gold narrative is a familiar one. In an increasingly fluid ecosystem, and a world in which a growing number of central banks have ballooned their balance sheets aggressively, investors rushed into gold as a means to hedge against identifiable risks (inflation), as well as to counter nervousness about big uncertainties (including previously unthinkable disruptions to economic systems).
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