What happens when you measure stock market gains in gold rather than USD?

The answer is contained in the graph below. Focus on the blue lines. When you change the unit of measure from USD to gold you get abetter idea of what has happened to our wealth.

The chart from Bloomberg shows equities, measured in gold, have been declining since 2000.

As Bloomberg opinion commentator John Authers notes,“Denominate U.S. stocks in gold rather than dollars, and they’ve been in decline since the dot-com bubble burst 25 years ago. Stocks elsewhere have done even worse.”

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We did the same exercise with the JSE, measuring the AllShare Index in ZAR and gold. The table is shown below. One of the old arguments against gold is that it doesn’t earn yield, has to be stored somewhere and insured (both of which are true, but the era of tokenised gold such as that offered by Mesh Trade takes care of that).

Have a look at the chart below. You can see your returns over 10 years come to 113% measured in ZAR and -20% measured in gold.

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JSE All Share index returns measured in ZAR and gold

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What we are witnessing here is the so-called debasement trade,

The debasement trade

“Investors are seeking to protect themselves from threats posed by runaway budget deficits through a phenomenon known as the ‘debasement trade’, pulling away from sovereign debt and currencies.” Economist Mohamed El-Erian notes that there are several factors are driving the so-called debasement trade, not deficits alone.

The purest form of debasement trade is being long gold orbit coin. Both of these are stores of value intended to protect against money printing, inflation and budget deficits.

“Debasement is like the dark matter of finance. You can't quite touch it, but it affects everything. Once you see it, all the strange stuff we struggle to explain -- like sky-high P/Es, soaring real estate, the struggling middle class, the massive gap between the GDP growth and the growth of household wealth ... instantly make sense,” notes Matt Hougan, chief investment officer at BitWiseInvest.

Several countries – notably Russia, China, India, Turkey and Khazakstan – have been loading up on gold bullion since 2000, anticipating further weakening in the USD, which remains the world’s reserve currency. Butas the chart below shows, central banks have started diversifying their reserves to include more gold. In fact, gold now accounts for more than 20% of central bank holdings worldwide.

This suggests the gold run is not yet over.

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What happens when central banks start incorporating bitcoininto their reserve strategies.

The 550% increase in the bitcoin price since January 2023was largely powered by institutional adoption, and the launch of exchange traded funds. This is turn was made possible by regulations that provided clarity for institutions on what they can and cannot do with cryptocurrencies.

Our guess is that central banks, in a race to protect against currency debasement, will start incorporating small amounts of bitcoin into their reserve strategies over the next 3-5 years. It will start slow and then grow fast. That’s when the bitcoin will take off like a rocket. And we suspect gold will be there too.

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