This is an extension of the post where I was writing about doing a gold-yen carry trade.

It’s an important trade and especially getting burned by the USDJPY carry trade, I am determined to really think through this one.

And the more I think about it, I’ve come to an entire paradigm shift …

I am not “investing” in gold

So I’ve been thinking, what are the risks associated with “investing” in gold.

If the price of gold drops in terms of USD, I “lose money”.

Or if I made a carry-trade with yen, then gold drops in terms of JPY and I “lose money”.

But then, I suddenly realized I’ve been thinking about it all wrong …

What if, in fact I am not investing in gold …

But gold is actually the REAL currency and value reserve, and I am “investing” in USD and JPY???

Then the question I’d ask myself is, is USD and JPY worth “investing in” at this point?

Recent history of gold prices

So with the paradigm shift, now the question becomes – would it make sense to invest in fiat currencies USD or JPY right now?

Or when would it make sense to do so?

Let’s answer the second question first, by looking at the history of USD in terms of gold prices.

Indeed, there was a significant drawdown between 2010-2015 where it dropped by 50% – going from highest around $2000/oz down to $1000/oz.

Why was there such a big drop?

I’ve come to realized, there actually wasn’t a big drop in gold’s value.

Or in other words, gold’s value NEVER drops. It’s the value of the USD that was fluctuating.

And the story was, in the 2008 financial crisis, the entire US financial system was being questioned and USD dropped significantly.

Gold went from $600 to almost $2000 within 2-3 years.

Then the financial system reset, recovered, and people saw that oh USD is alright … and started buying USD again.

And the price went from $2000 back to $1000 in 2015.

But if we look more closely, gold prices did NOT drop. It went from $600 in 2008 to $1000 in 2015.

The reality that Gold is THE REAL currency, and fiat USD dropped in value in those ~10 years was still reality.

Outlook of Gold prices 2024 and onward

I’ve already written posts about gold price demand – Russia’s invasion of Ukraine, distrust of the USD, China and other central banks buying up gold, geopolitical tension, etc.

To add to that, it would seem that central banks aren’t in any hurry to slow down the money printing. On the contrary, after covid they printed like crazy, slowed down, and now in Sept/Oct 2024 it seems they are all ready to start again.

US, EU, China, for sure. Japan is hiking rates … but with the govt deficit and trade deficit, there is almost no way they can slow down the printing.

so USD is going to debase. JPY is going to debase.

And “investing” in USD or JPY is almost non-sense at this point.

Back in 2010, when the US financial system recovered, maybe looking at the short-term strength and recovery of the USD it might have made sense.

And it was short-lived too as after 2015 the debasement caught up and gold came back up to ATH in 2020 during COVID – and made many many ATHs between 2020 and 2024.

With it being at ATH now around $2600 some worry it’s a bubble – which is why I wanted to be cautious about my “investment” in gold.

But with the new paradigm shift, the question isn’t whether gold is in a bubble, because gold is ALWAYS fairly valued. It’s the fiat currencies that are overvalued or undervalued.

And the question is – is USD or JPY being undervalued at this point? Would they strengthen in the future?

Well my answer would be NO.

These 2 fiat currencies will keep debasing and maybe at a higher rate than before, and holding the REAL value reserve of gold makes the most sense.

So my new strategy

• 20% USD cash (just to keep some basic liquidity)
• 0% JPY (shorting all cash)
• 30% stocks (US/JP)
• 40% gold
• 10% bitcoin

I might consider increasing the stock percentage but then maybe again, why bother. In recent years Gold price outperforms S&P500.

Which is crazy meaning the increase in value of the companies couldn’t even catch up to the rate of debasement.