Seth Klarman on Gold

My buddy goes to MIT's Sloan Business school to do his MBA. Somehow he is doing a class at Harvard and his professor got Seth Klarman to come in and talk to the class! That's awesome! I managed to ask my buddy to ask Mr Klarman a question.

Simply put:
Does he believe that Gold, even at today's high price, is a good hedge against inflation? If not, what would be a good hedge against inflation?

This is his reply: Mr Klarman said he does think is gold overvalued. He said the best long-run hedge against inflation is real assets.

I agree. I have a lot of difficulty valuing Gold. There's no long term predictable cash flow. There's no business prospects to evaluate. So how can I as an analyst figure out the long term price of gold?

What's the difference between gold and collecting art or wine then? One of the reasons why value investors don't buy art or wine is 'coz they don't have long term predictable streams of cash flow. Hence they can't be considered an investment.

There are 3 main uses of gold - jewelry, manufacturing and financial. The first 2 uses have seen dramatic drops in demand and they normally account for 2/3 of the total gold demand. Currently, what is driving the gold price is mainly financial. Financials can only sustain the gold price for so long. Once markets get back to normal, pp are going to want to go back into other assets, like stocks as their price goes up. That will probably lead to a decrease in the gold price. So the pp who bought it as a retention of real value, just found themselves buying gold at its peak, only to put their capital at risk of permanent loss.

The other thing is I don't quite like buying stuff when everyone else is buying it. Esp if I'm buying the stuff at a multi-year high. Call me a contrarian. But Gold is trading at a multi-year high. I'm not hot on following the crowd. 'coz you never know when the crowd will turn and leave you holding the ball.