A thread on gold, if only to clarify my own thoughts as I'm conflicted about the asset. 1/ $1800+ Gold is priced as a hedge to the possibility of the current monetary experiment failing - as its jewelry, industrial value and cost to production would price it closer to $1100/oz

2/ very few invest in gold based on valuation, however - as the trajectory of events shapes price more historically. Gold has 2 main drivers - the cost of carry and the size of the deficit. Since 1900 if you'd only used these two variables to trade gold you'd have done quite well

3/ the bull case for gold is simple. The deficit expansion has no end in sight, and the 'opportunity cost' (aka rates) will be zero or negative for years according to central bankers. The simplicity of the bull case is why gold trades so high above production cost. What gives?

4/ The biggest bear case for gold is that 3 huge holders - namely Russia, India and retail investors via ETFs - would be eviscerated if the monetary experiment fails, forcing liquidation. Jim Rogers has been saying for some time that the real gold move starts after a 90% drop.

5/ Why such a drop? The trajectory of monetary failure would likely involve a] implementation of MMT 2] a surge in inflation 3] panicked rate hikes that are subsequently made illegal 4] aggressive taxation 5] prohibition of gold 6] emerging markets default 7] economic collapse

6/ Also, now that there are cryptocurrencies and the economy is digital will we really default back to ancient Rome? This brings us to the bear case for gold - that if the true gold bull case arrives things are so uncertain that it's hard to say gold will work.

7/ This sounds drastic but is why, for example, credit default swaps on Emerging Markets pay out in US dollars and not local currency as profits suffer from a denominator issue. There's no guarantee that gold will be the new store of value in the post-monetary mad max situation.

8/ This - among other reasons, is why Soros labeled gold "the ultimate bubble". The mere existence of blockchain technology gives pause to the entire gold bull thesis because it adds a degree of uncertainty to the 'denominator issue'. This is why Peter Schiff is obsessed with BTC

9/ The question from a near term perspective - is will enough questions crop up around Gold's value in a severe downturn that Central Banks will question / halt their purchases, driving downwards pressure which spooks retail investors into selling? My instinct is yes.

10/ Dorsey and Zuckerberg's obsession with cryptocurrency mean that a huge % of social media will push non-gold store of value narratives. Dorsey is the CEO of 2 companies but finds the time to design bitcoin websites personally. Zuckerberg got roasted for Libra but persisted

11/ Developed market central banks are likely to buy less gold for 3 reasons. 1] gold mining is dirty & against climate goals 2] buying gold is a sign of weakness re: credibility that's being called into question 3] Gold price is high and now there are suggestions of manipulation

12/ Developing markets such as India and Russia are likely to slow purchases for simple economic reasons. When their economy is weak they can either sell gold reserves or print money to affect stimulus. Money printing causes inflation and is unpopular. Thus Gold is sold.

13/ Putting all of this together, the quantitative/fundamental argument for buying gold (low carrying costs and higher deficits) is outweighed by the technical factors, namely an unsophisticated investor base who is long and power brokers not buying (or outright selling).