Renowned economist Ken Rogoff made a bullish case for Gold according to a latest write up in World Gold Council’s (WGC) Gold Investor Update for February 2019. He is particularly concerned about the amount of gold held by emerging market central banks, suggesting they should increase their gold reserves by several percentage points. Emerging market central banks should hold fewer dollars and more gold as a way of diversifying their portfolio. It’s a simple question of diversification.
At the moment, most emerging market central banks hold 1–2% of their reserves in gold, with 70–80% in dollars and the rest in euros and other currencies. A 5% allocation seems a natural position to take as part of an effective diversification policy – although it could be higher. After all, the US share of the global economy is shrinking, power is being centralised and we don’t know what the future holds, he noted.
Against this backdrop, the rationale for holding gold becomes even clearer. The point is, Treasury bills are not a riskless asset. They may be for two to three years but not necessarily for the long term, so if you want to build a 40-year plan, you should have some diversification. Let’s face it – if you’re a hedge fund manager and there is a 3–4% chance you will get wiped out and a 96% chance you will get very rich, that’s a bet worth taking. If you’re a country, that’s not such a smart bet, Rogoff noted.
He believes that institutional investors and wealthy individuals should also allocate a proportion of their portfolio to gold. Rogoff suggests that gold is also likely to increase in value as its global role evolves. The trend towards digital currencies will strengthen the value of gold. As emerging markets expand and trust the US less, that will also strengthen the value of gold, noted the article.