Newly fashionable economist John Maynard Keynes spent much of his career attacking the human instinct to hoard stores of wealth unproductively. For example, the tons of gold buried under millions of Indian floors, rather than invested productively in working assets or contributing to the financial system and magically raising demand through the economic multiplier.
In contrast, Campbell Harvey, a recent speaker at a CFA Conference, argued the case for including gold as a commodity in a well-diversified portfolio, particularly if investors and central banks increase their demand — even moderately — for gold. One driver of demand has been the moves by central banks to diversify away from the dollar into other currencies and assets. In recent years interest in commodities has grown tremendously, partly because commodities are believed to provide direct exposure to unique factors and have special hedging characteristics. One large study finds that gold is a hedge against stocks, on average, and a safe haven, for a limited time, in extreme market conditions. Yet another study finds that holding either commodity indices or commodity futures are inferior to those of traditional stock/bond portfolios.
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