Investing - Theory, News & General • Gold in a portfolio?

But in this case, the issue at hand was whether stocks and gold are in the same position when it comes to our inability to reject the null hypothesis as to ∆ Valuation + Currency Adjustments.

And the answer is no

Correct. However instead of comparing productive to non productive assets, compare gold with bonds/cash deposits

Sure.

Fixed income products can be complicated because the returns are contractual, and there is a wide variety of possible contracts.

But at a high level, the return on a fixed income product is just:

Received Cash Flows + ∆ Valuation + Currency Adjustments

As usual, the null hypothesis is the latter two terms have an expected return of zero, so all the expected return is in the cash flows.

Storing gold or any other commodity has no such cash flows, so again it is quite different from fixed income in that sense.

and/or blends of stock/bond to blends of stock/gold.

Backtesting asset combinations is a tricky business, particularly for cases like free-floating gold where we have such a limited (and not well-defined) time period. Backtesting also then tells us very little about how to model assets going forward, as there is no particular reason to believe a backtest even of arbitrarily long length is strongly predictive of future dynamics. Indeed, we know from various studies that backtests actually get even more unreliable the longer back you go.

Comparing two farms where one farmer leaves his field idle (land value (asset price) only (gold)) wont compare in total return to another farmer that works his land to yield harvests that he sells (price + dividends (stocks)).

If the price of gold just broadly compared to CPI, not M2 (money supply/debt expansion) then its price would be inclined to become cheaper in terms of fiat currency.

I honestly have no idea what you are trying to say here.

If the nominal USD price of a unit of gold ultimately tracks CPI (with a lot of noise due to fluctuations in valuation), then the nominal USD price of a unit of gold will trend up over time, because CPI trends up over time.

Of course I could substitute oil, hogs, lumber, whatever.

There is a theory that in general, commodity prices might trend down in real terms over time. This is for complex reasons related to increasing commodity production efficiency, and decreasing economic reliance on commodities for further production.

For most commodities, however, their valuation is closely tied to their anticipated use in further production.

Gold is in fact different, at least for now, in that it has an unusually large price component that appears untethered to its possible productive uses.

This is sometimes known as a "greater fool" component, since it appears the hope of people buying/holding at such prices today is that someone will eventually come along and buy it for an even higher "greater fool" price in the future. And the "fool" part (which admittedly is pretty unkind, but I didn't invent the term) is that this hope appears unconnected to any standard economic logic.

But the null hypothesis is that the "greater fool" component is neutral, meaning at least over long periods, those "fools" will in fact eventually show up to buy your gold, and you will at least not take a big loss.

Of course if that ever ends up not being true--it could get ugly for people who bought gold when there was such a large "greater fool" component.

Since 1933

Again, there really is no point looking at data from periods where gold was not a free-floating commodity.

Statistics: Posted by NiceUnparticularMan — Fri Sep 12, 2025 12:07 pm — Replies 66 — Views 3516

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