It was the last stand of the gold bugs. And now it's over.
On Sunday, the Swiss held a referendum on returning to the gold standard.
The Save our Swiss Gold' plan would have forced the Swiss National Bank the central bank to hold 20% of its reserves in gold. If that had happened, demand for gold would have surged, simply to meet the needs of the Swiss.
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But in the end, 77% voted against the plan.
So is it time to ditch your gold?
Not at all. It might not like being told what to do with its reserves, but like most other central banks around the world, the Swiss Central Bank still holds some gold. And you should too.
The rational person's guide to owning gold
When people get emotionally engaged with their investments, they often turn into twits, to put it gently. They get stroppy and defensive and they refuse to listen to sensible arguments or to accept that the price of the object they love can go down as well as up.
Of course, gold also arouses equally strong reactions in some of those who don't own it. Lots of intelligent people simply don't get' gold. They'll quote the whole "barbarous relic" line from Keynes, and talk about how gold is only valuable because people believe it has value. It has no intrinsic' value.
Instead, they see the value of gold as being rooted in a psychological flaw in the rest of humanity. In short, "gold is worth something because all of these other idiots think it's worth something".
Willem Buiter from Citi put out a research note along these lines the other day just before the Swiss vote, arguing a little mischievously that gold was a 6,000-year bubble.
I don't have a lot of time for either extreme. There are sensible, rational reasons to owngoldas a portion of your portfolio, and it's got nothing to do with faith'.
Sensible, rational reasons to owngold
There's a reason for this. Gold is about the only asset in the world that has value independent of a counterparty.
Companies go bust shares and bonds follow. Governments go bust government bonds follow. Property is easy to confiscate (ask a wealthy Scots landowner how secure they feel right now go on, I dare you). And cash history is full of examples of currencies that have gone down the toilet.
A lump of gold has no counterparty. It's a lump of metal that most people throughout human history, and probably into the future, recognise as having value.
So when concerns about creditworthiness in the system reach breaking point which happens more often than market theories would predict gold comes into its own.
That's why it behaves differently to other assets. And that's what makes it a key part of a diversified portfolio.
Oh, and there's a reason why it's specifically gold that fulfils this function. It's not just because humans like shiny things. We aren't giant magpies.
Remember your periodic table from your chemistry lessons? (My apologies for any panic-stricken flashbacks that might trigger.)
To cut a long story short, very few of the elements on that table work as a long-term store of value. Gold works because it'll stay put (it's not a gas or a liquid under normal conditions). It's not going to give you radiation poisoning. It's very unreactive so it won't rust or rot.
In short, if as a species you have need of a reliable store of value, then gold works better than just about any other raw material.
So I think it's sensible for anyone to hold a small portion of their portfolio in gold between 5% and 10%, say. That's pretty much regardless of what else is going on.
There's another reason I'm hanging on to gold
The strong US dollar, the collapse in oil, and now the Swiss vote those are all negative for gold (gold and oil often move in the same direction, while gold and the US dollar often move opposite to one another).
But I've no intention of selling my holding of gold. There's always room for insurance in a portfolio, of course. But right now, I'm particularly keen to have some protection against disaster.
You see, broadly speaking, I'm very pleased about the slide in the oil price. But I'm also concerned that there's an outside chance that it could trigger the next financial crisis.
We'll have a more in-depth look at this topic in the next issue of MoneyWeek magazine, out this Friday. If you're not already a subscriber, get your first four issues free here.
