Gold might not be perfect, but it can balance out disinflationary boom assets
According to Nobel prize laureate Harry Markowitz, when it comes to investing, “diversification is the only free lunch”. If you’re using stocks and bonds to build a portfolio, you are only using a small part of the investable universe, and many investors look right past powerful portfolio diversifiers such as gold.
, which reveals something about gold’s attribute as a monetary asset. However, gold differs from printable currency in that it cannot be created by fiat but must be mined from the earth. Gold has a fixed supply compared to easily printable fiat currency. To the extent that there is a demand for gold as a hard backing for money, the limited supply will ensure its price is well supported, at least far better than that of overprinted fiat.
But this conclusion misses a key point. If we apply the same method to US inflation-linked bonds over the same period, we are led to the same strange conclusion: even though inflation-linked bond coupons are directly linked to inflation, they have no relation to inflation. This sounds wrong, because it is wrong!
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