Emerging Consumers Drive Gold Prices: Who Knew?
GMO white paper by Bhartia and Seto
"Conventional wisdom has it wrong. The prevailing view is that the rapid rise of gold prices over the past 10 years has been caused by monetary authorities in the developed world debasing their currencies. By this logic, investors in the developed world have hedged debasement risk by pouring money into gold, both in the form of direct purchases and via ETFs. We believe that gold is an emerging markets asset as much as it is a bet against the Federal Reserve, and that much of the rise in gold prices has been driven by purchases by emerging consumers, who are driven primarily by 'financial repression.'
The traditional framework used to analyze gold starts with the assumption that gold is the ultimate store of value. Along that line, if faith in paper currencies wanes, the price of gold should rise. Consequently, gold prices should be highly correlated to inflation. The traditional barometer for inflation and weak central banks, and thus gold, is U.S. inflation."