A Golden Fairy Tale From PIMCO

By: Simon Mikhailovich

A long time friend and a TBR partner shared a PIMCO note provocatively titled "Rumpelstiltskin at the Fed". For those who do not remember the tale of Rumpelstiltskin, its eponymous character possessed an ability to spin straw into gold. 

The note is quite remarkable coming from a prominent mainstream asset management firm. It explains that gold is not an asset but an alternative currency and examines the impact and lessons of the 1934 dollar devaluation, which lifted gold price by 70% and caused moderate inflation. The author goes on to suggest that by launching a gold purchase program at, say, $5,000 per ounce, the Fed may achieve its inflation targets, as it did in the 1930s, without resorting to the politically untenable "helicopter money" strategy. 

Whether or not this idea has any legs, mere fact that PIMCO is voicing it is nothing short of remarkable. Re-emergence of gold as a monetary asset and as a mainstream portfolio holding may seem improbable to most Western investors. However, the author points out that negative rates (I would add the bailouts and money printing), were all quite unimaginable mere 10 years ago. 

My main take away from this piece is that gold's monetary role and its potential return to the forefront are starting to make way back into the mainstream institutional discourse, which is a development worth watching. 

To read the PIMCO note please follow this link: "Rumpelstiltskin at the Fed".