Gold as a Store of Value: A Critical Perspective
When it comes to safeguarding your assets, many might think of gold, but that perspective is worth reevaluating. This is especially interesting given the significant increase in gold prices over the past year. However, billionaire investor Howard Marks highlights the uncertainty in determining whether precious metals are valued appropriately.
During a recent discussion at Pepperdine University, Marks, who co-founded Oaktree Capital Management, questioned gold’s status as a reliable store of wealth. He contrasted it with traditional investments—like stocks, bonds, and real estate—those that can produce cash flow and have clear pricing determined by expected returns.
Marks emphasized that, similar to other alternative assets, gold does not generate cash flow. Consequently, he asserts there’s “no debate” over how it should be valued. This situation comes with inherent risks for investors in hard assets. He referenced the peak of Brent oil prices in 2008, which hit around $147 per barrel—a surge attributed to factors like limited supply controlled by countries with strained relations with the U.S.
It’s worth noting that this phenomenon persisted even as oil prices plummeted to about $40 a barrel during the Great Financial Crisis.
“Determining a fair price for oil or gold is quite challenging,” Marks remarked. “How do you factor in all these qualitative aspects fairly? The answer is, you really can’t. This holds true for gold as well.”
He pointed out that gold’s primary appeal as a store of value stems from societal consensus rather than inherent worth. Reflecting on a memo he sent to clients back in 2010, Marks described gold as “perfect” and an “ideal investment” but claimed it holds no value as a hedge against inflation. He argued that, despite gold being tangible and limited in supply, a common metal like iron arguably serves as a better store of wealth—if only people didn’t have this collective notion that gold retains its value.
Marks likened the mindset surrounding gold to “self-deception” and a sort of “mass hysteria,” similar to the story of The Emperor’s New Clothes. In that memo, he stated, “Gold has no monetary value other than what people perceive it to be, and thus, it shouldn’t be a feature of serious investment strategies. I firmly believe this.”
This perspective from Marks stands in stark contrast to the views prevalent among many investors in recent times. Numerous analysts suggest various factors are driving up gold prices, including geopolitical tensions, central banks purchasing more of it, and a waning interest in dollar-denominated assets, forecasting a 5% rise in precious metals by 2026.
