The above image of Tutankhamun’s 24-pound solid gold burial mask is on display in Egypt today. King Tut was an Egyptian pharaoh who ruled between 1332 – 1323 BC, roughly 3,350 years ago. Gold has clearly been a valuable asset throughout human existence. The key question is why?
I will answer the question in the context of portfolio management; however, the properties of gold are truly extraordinary, which imbue elemental value. For example, Nasa’s recently launched James Webb Space Telescope features gold-plated beryllium mirrors. They enable it to view objects too old, distant, or faint for the Hubble Space Telescope. For the first time, humanity will be able to observe the first stars and galaxies in addition to detailed atmospheric conditions on exoplanets. This is quite valuable.
A key property of gold for space exploration is that gold is chemically unreactive. In other words, gold doesn’t change easily and remains incredibly stable. This makes gold the most effective element for many important purposes, in addition to being the most reflective element for infrared light applications.
Stability is a key feature for those looking to preserve wealth, as is on display in the picture of King Tut’s burial mask. It remains unchanged after 3,350 years with a current gold value of approximately $650,000 in a 24-pound package. History has proven that currencies and financial instruments can become unstable over longer time periods while many will lose all of their value. Gold is unique in that it is guaranteed to remain unchanged forever, on an elemental level.
The Efficient Frontier
In portfolio management, the return distribution of each asset class is a key and defining feature. Essentially, what is the most likely risk/reward potential for each asset through time? Another key factor is how closely the returns of each asset class are correlated.
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