BIS paper on gold percentage within portfolio to manage risk. Even 50% is mentioned

[JohnA1]

https://www.bis.org/publ/work906.pdf

 

These are the guys pushing the 'paper is money' narrative

Yet the percentage of gold they calculate for portfolio risk minimisation is kinda larger than one would expect..

[HonestMoneyGoldSilver]

I enjoyed that, lots of nice graphs I can show @treetop1280

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In practice, therefore, careful risk-return analysis may have to be supplemented by more qualitative considerations before a decision about (the size of) gold reserves is being made. Various such additional arguments favouring gold holdings have been advanced in the literature:

• First, gold is an asset viewed by many as durable and largely imperishable (Erb and Harvey (2013)), which renders it free of default risk. The BoPM clearly establishes that gold bullion is the only case of a financial asset with no counterpart liability.

• Second, unlike currencies and debt – which are claims on foreign governments or institutions – gold kept at home is not subject to political manipulation (for a World War II example, see Bernholz (2002)).

• Third, gold has been empirically proven to serve as an inflation hedge, at least over longer periods of time (see for example: Worthington and Pahlavani (2007), Shafiee and Topal (2010), Erb and Harvey (2013) and Aye et al (2016)).

• Last, its most widely recognised feature is its potential value in highly adverse scenarios. This is the so-called “war chest” argument (Nugee (2000)). 

In fact, factors beyond purely financial ones (eg, experience) may better explain central banks’ holdings of gold. Recently, it has been shown that habits of the gold standard transmitted over time and affected monetary policy decisions decades later. In other words, both the memory of a central bank and its individuals have an impact on the share of gold held (Monnet and Puy (2020)). These behavioural aspects are not captured by our analysis. Nonetheless, the possibility of large-scale, adverse non-financial events may lead to further reflection. For example, a major war, a period of very high inflation, or – speaking to more recent events – a systemic cyberattack or a global pandemic may give central banks enough reason to hold on – if not add – to their bars of gold. Indeed, in highly adverse scenarios, a country’s stock of the precious metal could be one of the ultimate means to ensure confidence in the stability of its finances. The relatively high gold allocations observed in practice, therefore, may be a measure of the importance attached to these broader considerations within the reserve management community. There is more to gold than risk and return.