Gold under the new regime

Gold under the new regime

Welcome back. I own no gold, other than a pair of cufflinks my dad gave me. My wedding ring is platinum. But the topic is unavoidable, especially when the topic on everyone's mind is inflation. So here goes.

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A hedge against what, exactly?

Wednesday's piece on Japan in the 1980s was, in a sense, about regime change. The idea was that a big shift in Japanese monetary policy, fiscal approach and corporate culture brought about an asset price bubble and permanently reset all sorts of economic relationships. The question is whether the present unleashing of simultaneous easy fiscal and monetary policy, and the change in the Federal Reserve's attitude towards inflation, means the US is heading for a similar regime change?

Because a main risk of this potential regime change is, by consensus, high inflation “” which would likely cause a correction in stock and bond markets “” my mind turned to hedging. Readers' minds are in a similar place: I have received a number of emails asking where the safe assets are. 

Gold is an obvious candidate; it is often touted as an inflation hedge. But that is too general. Gold has one of the most stable relationships to economic fundamentals