Dalio, this reflection on gold is worth a look.

From a historical perspective, about 80% of currencies have disappeared since 1750, and the remaining 20% have been severely devalued. In contrast, "gold is a universal currency that transcends time and borders," relying on no one's credit promise.

Dalio emphasizes: "When other assets perform the worst, gold often performs the best, serving almost as a 'insurance policy' in a diversified portfolio, and he suggests a gold allocation ratio of 15%."

This ratio is similar to the all-weather allocation strategy we wrote at the beginning of the year!

Another interesting perspective on gold is the ratio of gold to wage income, which has long maintained that the price of 1 gram of gold is approximately equal to 1/8 of the monthly salary (in China).

Throughout human history, the price of gold has been linked to labor prices, with the price of 1 gram of gold fluctuating around the price of 3.75 days of labor, meaning that the price of 1 gram of gold is about equal to 1/8 of the monthly salary.

For example, during the Northern Song Dynasty, the average monthly wage for labor was 3000 wen of copper coins, and 1 gram of gold was worth 250 wen of copper coins in the second year of Emperor Taizong's reign, 125 wen in the eighth year of Emperor Zhenzong's reign, and 800 wen in the first year of Emperor Qinzong's reign, all fluctuating around 1/8 of the monthly wage (375 wen of copper coins).

Similarly, in 2024, the average monthly wage for urban labor in China is 9072 yuan, for rural migrant labor is 5634 yuan, and for local non-agricultural workers (local migrant workers) is 4291 yuan, with the national average monthly wage around 7000 yuan, making 1/8 of the monthly wage approximately 875 yuan, which is not far from the current price of 1 gram of gold.

Why does the price of gold fluctuate around labor prices? After all, gold is a beautiful, scarce, natural currency, and it cannot have a long-term price increase rate lower than that of labor prices; otherwise, everyone could buy a lot of gold, while the total amount of gold in the world (both mined and potentially mineable) is only 40 grams per person, making it impossible for it to be cheap enough for everyone to buy a pile. At the same time, gold is not a necessity, and its price cannot continuously rise faster than labor; otherwise, no one would be able to afford it.

The relationship of 1 gram of gold being approximately equal to 1/8 of the monthly wage is a long-standing historical pattern of gold prices that still applies today. Due to the link between gold prices and wages, 1 gram of gold is about 1/8 of the monthly wage, which means that the long-term return on gold is higher than that of inflation, bonds, oil, industrial metals, and money market funds. Therefore, it is feasible to allocate a certain proportion (such as around 10%) of personal net assets to gold in the long term. 🧐

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