Finance

A mall visitor walks be a GameStop store on December 08, 2021 in San Rafael, California.
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Check out the companies making headlines in after-hours trading:
GameStop — Shares of the retailer jumped more than 28% in extended trading after the Wall Street Journal reported that GameStop will create a marketplace for NFTs. The company is also exploring cryptocurrency partnerships for games and items for the marketplace, the report said.

Quidel Corporation — Quidel shares gained more than 2% after the diagnostic healthcare product manufacturer released preliminary fourth-quarter results. The company is targeting a revenue range between $633 million and $637 million. Analysts surveyed by StreetAccount were expecting $465.7 million.
T-Mobile — Shares of the communications company declined more than 1% during after-hours trading on Thursday after the company announced preliminary full-year results. T-Mobile said it added 1.2 million postpaid accounts and 5.5 million postpaid customers.

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“POWER GRAB”. An “attempt to politicise our regulators for their own gain”. “Extremist destruction of institutional norms.” The rhetoric flying around Washington sounds like the criticism once levelled against President Donald Trump about hot-button issues from border security to pollution controls. Instead, it is Republicans who have directed these barbs at Democrats in recent days, focused on something that, on the surface, seems far duller: the Federal Deposit Insurance Corporation, the agency tasked with protecting savers from bank busts.As the heated language suggests, the stakes are in fact high. Along with insuring bank accounts, the FDIC is one of the institutions that approves bank mergers in America. That makes it a crucial player in the Biden administration’s plans to impose stricter rules on the financial system. And the Democrats have now taken full control of it after a nasty boardroom battle.Democrats already held three of five seats on the FDIC’s board, which should in theory have let them have their way. But the chairwoman was still Jelena McWilliams, a respected lawyer appointed by Mr Trump. She had the power to set the agenda for meetings. The Democrats alleged that she used it to block a review of the policy for bank mergers—which she has denied.The dispute exploded publicly last month when two Democrats on the board, including Rohit Chopra, director of the Consumer Financial Protection Bureau, attempted to work around Ms McWilliams. They announced that the Democratic majority had voted for a review of bank-merger rules, without her support. Ms McWilliams countered that there had not been a valid vote. In an article in the Wall Street Journal, she accused them of plotting “a hostile takeover of the FDIC”. On December 31st, with the board split beyond repair, she announced her resignation.The clash is a window onto the efforts of progressives within the Democratic party to make their mark on the institutions overseeing the economy. Mr Chopra is an ally of Elizabeth Warren, a senator who is a champion of the Democrats’ left wing. Others liked by Ms Warren—notably, Lina Khan, head of the Federal Trade Commission, and Gary Gensler, chairman of the Securities and Exchange Commission—are also in key roles.Progressives have not won all the personnel fights. Saule Omarova, their preferred candidate to lead the Office of the Comptroller of the Currency, a banking regulator, withdrew from the nomination process in December after Republicans decried her as a “radical”. The reappointment of Jerome Powell as head of the Federal Reserve was another disappointment for the left. Yet with three seats open on the Fed’s board, progressives can make inroads. Most crucially, Mr Biden is expected to nominate Sarah Bloom Raskin, another preferred candidate of Ms Warren, as the Fed’s vice-chairwoman for supervision, the most important regulatory post in the financial system.What do the progressives hope to achieve? It is already clear that they want to curb big tech. The row at the FDIC reveals that they also intend to limit the formation of big banks. For now the review of the bank-merger policy is just a request for information. But the questions posed by Mr Chopra in a blog post in December leave little doubt about his desired direction: “Should financial institutions that routinely violate consumer-protection laws be allowed to expand through acquisition? …How should we make sure that a merger does not increase the risk that a bank is too big to fail?”Many bank analysts like the idea of midsized American firms banding together to take on the big four (JPMorgan Chase, Bank of America, Citigroup and Wells Fargo). Progressives would argue that this gets things backwards. If the power of giant banks imperils financial stability, the creation of yet more giants would only exacerbate that, says one official. Other possible changes include integrating climate concerns into financial regulation and beefing up some capital requirements. Democrats will, as ever, need to surmount legislative and lobbying hurdles to make any of this happen. But with the FDIC now firmly in their grasp, the path is a little clearer. ■This article appeared in the Finance & economics section of the print edition under the headline “Regulatory flex” More

HOURS BEFORE Brussels entered 2022, a bombshell dropped. In a draft sent to EU countries, the European Commission proposed classing some nuclear and gas projects as green in its “taxonomy”, a list meant to define sustainable investing. Austria threatened to sue; Germany cried foul. The plan is still likely to win majority support from member states, which have until January 12th to opine. It could set the terms for green investing well beyond Europe. But will it steer capital towards deserving projects?The idea emerged after the 2015 Paris climate deal, when the EU’s effort to craft a common green-bond standard for corporate and sovereign issuers revealed that members did not agree on what counted as green. Some countries have since worked on their own classifications, but Europe’s, which maps swathes of the economy over 550 pages, is the most comprehensive.The taxonomy hopes to end the practice of greenwashing and boost investors’ faith in sustainable assets. It will offer a common set of criteria that investors and banks can use to screen potential investments. Most money managers already have their own teams and tools to measure greenery. But the lack of a shared benchmark means scorecards remain subjective and inconsistent across the industry, which confuses investors. Having a dictionary where they can look up whether an investment can be labelled green puts everyone on the same page.Another aspect of the plan is to link the taxonomy to disclosure. Starting later this year, some 11,000 listed European firms will have to report how much of their sales and capital expenditure fits within the classification (the number of businesses covered will eventually expand to 50,000). Since January 1st asset managers must already detail what share of the products they label sustainable is compliant with the bits of the taxonomy that are already in force. From 2024 most European banks will also have to report a “green asset ratio” using the same criteria. All this should put more and better climate-related data in the public domain. “It is our best hope globally to measure how much money is going into activities aligned with net zero”, says Daniel Klier of Arabesque, an asset manager.Eventually the classification will also underpin EU certifications for securities issuers, creating a direct link with capital markets. The green-bond standard, for one, is expected to use the taxonomy as its benchmark for eligibility. The commission will probably also use the classification as it doles money out to member states from its Recovery Fund, some of which is linked to greenery.The degree of detail and stringency of Europe’s approach could help make the taxonomy the global gold standard. Other countries outside the bloc are working on schemes of their own. Each will probably be moulded by political compromises, geostrategic concerns and carbon pledges. But foreign companies, asset managers and banks could end up adopting the EU’s taxonomy anyway, because their European clients may need them to report the right data, so as to produce their own disclosures. Some may lobby their own governments to limit divergence.Whether all this is enough to channel funds towards the right investments is another question. One immediate problem relates to implementation: because of missed deadlines, green-finance firms are being asked to report on their compliance with the taxonomy before companies are required to provide the underlying data, making the job difficult.A bigger drawback is the taxonomy’s limited coverage. At present it applies to a subset of economic activities. Disclosure requirements also let small public companies, and all private ones, off the hook. Morningstar, a research firm, reckons it will affect just half of fund assets in the EU (excluding private vehicles). That leaves much in the dark at a time when listed giants, including miners and utilities, are rushing to divest their dirtiest assets to private investors. More may come to light as the EU’s reporting requirements expand to cover new companies, some of them private. But that will take time.The biggest problem lies in the flawed expectation that the mere existence of the taxonomy will alter investors’ preferences. A project’s greenery is just “one data point”, says David Henry Doyle of S&P, a rating agency. Creditworthiness, interest rates and earnings prospects may matter more. The classification, notably, creates no incentive for backing green assets that are starved of funding, such as low-carbon steel or electric-car charging stations. Instead investors may continue to chase safe, liquid assets such as wind or solar plants, jacking up prices. Green is good, but it is not enough. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Gold standard” More

INFLATION IN ARGENTINA had intensified, the IMF lamented. The cost of living had increased by some 50% over the course of the year. “The most important source of inflation”, the fund explained, “was government-deficit spending, financed by borrowing from the central bank.” The deficit, in turn, reflected excessive wage demands and the failure of the country’s utilities to raise prices in line with costs. The year was 1958. At the end of it, Argentina turned to the fund for its first “standby arrangement”, a line of credit accompanied by a plan to stabilise the economy.Sixty years later, in June 2018, Argentina was back for its 21st arrangement: a $50bn loan, later increased to $57bn, backed by the government’s promises to cut the budget deficit and strengthen the central bank in the hope of quelling inflation and stabilising the peso. The loan was the largest in the IMF’s history. It has left Argentina so in hock to the fund that the country will need a new longer-term loan to help it repay its existing one. Despite its size, the rescue failed to save Argentina from default and despair. It has also left the fund heavily exposed to a single country when many other emerging economies may soon need its help.The IMF’s dance with Argentina over the decades has attracted plenty of criticism. The institution has been variously described as too indulgent and too punitive, too kind and too cruel. Conservative critics think the fund has been seduced by its dance partner, wasting public money in a futile battle with market forces. The left, on the other hand, thinks the fund is both neocolonial (ie, too bossy) and neoliberal (ie, too enamoured of free markets).The fund’s latest critic is the fund itself. Shortly before Christmas it published a lengthy evaluation of its 2018 arrangement with Argentina, led by staff who had not been involved with it. It concludes that the rescue was not “robust” enough to withstand the foreseeable risks it faced. Argentina’s economy, the report points out, suffers from some longstanding structural weaknesses. Its public finances are notoriously fragile (only 15% of the workforce pay income tax, according to the OECD, and energy is heavily subsidised). Its financial system is shallow, which tempts the government to borrow from fickle foreigners instead. Its range of exports is narrow. Inflation is stubbornly high and responds only fitfully to tighter monetary policy. Argentines like to hold their deposits in dollars. And they often price things with reference to it. That means that inflation rises quickly when the peso drops.The government of Mauricio Macri, which requested the IMF loan, also faced tight political constraints. His centre-right party did not hold a majority in the legislature, and he had to stand for re-election in 2019, before any painful economic reforms would have time to bear fruit. Given these difficulties, the fund knew the loan was risky. Yet it did not insist on adequate contingency plans upfront, the evaluation points out. At the outset, the fund hoped that a big loan would restore the confidence of foreign investors, stabilising the peso and allowing the government to roll over its dollar debt on reasonable terms. The government’s liabilities would then prove easier to bear and the confidence of its creditors would be self-fulfilling. Moreover, Argentina might not need to draw down its IMF credit line entirely, leaving the fund less exposed to the country than the headline amount suggested.This gamble soon failed. Foreign capital kept retreating, the peso kept falling and inflation kept rising. The evaluation speculates that the size of the IMF’s loan may even have been “self-defeating”, eroding confidence rather than inspiring it, since foreign investors knew the fund would be repaid before them.In October 2018, once it became clear that Argentina would need all the money it could get, the IMF agreed to enlarge the loan and disburse it more quickly. The new plan called for an even smaller deficit and even tighter monetary policy. At times, the revised plan seemed to be working. But a jump in inflation in early 2019 caught everyone by surprise. And any remaining hopes of success were dashed when it became clear Mr Macri would lose that year’s election. In its last months, his government had to impose capital controls to stem capital flight. The leftist government that succeeded his defaulted on the country’s foreign debt.What kind of contingency plans should the fund have insisted on? The evaluation singles out an “early” debt restructuring (in which the government would have asked its creditors to accept a delay or decrease in repayments) coupled with capital controls to prevent money fleeing the country. That would have eased Argentina’s debt burden. And it might have left more IMF money for later, helping bolster the country’s foreign-exchange reserves and rebuild confidence in the aftermath of the debt write-down.Own goalBut if such a plan had become public, it would have rocked market confidence, precipitating the damage it was designed to limit. And it might also have violated the government’s “red lines”, which ruled out such measures because it regarded them as a hallmark of Argentina’s uncreditworthy past. The evaluation concedes that stabilisation plans do not work if governments do not feel they “own” them. But “ownership”, it says, “should not be understood as a willingness to defer to [a government’s] preference for suboptimal policy choices.” The IMF should not, in other words, let governments make their own mistakes with the fund’s money.The evaluation alludes indirectly to another implicit goal of the IMF in Argentina: to rescue its own dismal reputation in the country. Had it insisted on an early debt restructuring coupled with capital controls, it might have distanced itself further from its reputation for free-market fundamentalism. But to have pressed such a plan on Argentina, against the wishes of its democratically elected government, would have entrenched its reputation for bossiness. In the case of Argentina, a less neoliberal approach would have been more neocolonial. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Blood on the dance floor” More

IN 2001 ANDREW LO, a professor at the Massachusetts Institute of Technology, predicted that technological advances would one day allow investors to create their own personal indices designed to meet their financial aims, risk preferences and tax considerations. Such an idea “may well be science fiction today”, Mr Lo wrote, but “it is only a matter of time.” More than 20 years later, that time may have come.A revolution in passive investing that began in the 1970s led to the introduction of funds that track the performance of an index, such as the S&P 500, affording investors diversification at a low cost. Now a growing number of American fund managers and brokers are offering retail clients more personalised products that combine the benefits of passive investing with greater customisation. Direct-indexed accounts, as such products are known, promise to track the performance of a benchmark index. But unlike off-the-shelf mutual funds or exchange-traded funds (ETFs), which are pooled investment vehicles overseen by portfolio managers, investors in direct-indexed accounts own the underlying securities, and can tailor their portfolios to suit their needs.The idea is not new. “Separately managed accounts”, custom portfolios of securities managed by professional investors, have been around since the 1970s. But such products have historically been available only to institutional investors and “ultra-high-net-worth” clients with millions of dollars to invest. Today direct-indexed accounts are within reach of the “mass affluent”, with liquid assets in the hundreds of thousands. “It’s what institutions have been doing for years,” explains Martin Small, head of the US wealth-advisory business at BlackRock, an asset manager. “But with technology and scale and more automation, we can deliver it in smaller account sizes.”Analysts point to three forces behind the trend. The first is advances in technology, including sophisticated algorithms and the computing power needed to continuously analyse and execute trades across hundreds of thousands of portfolios simultaneously. The second is the rise of zero-commission trading, which dramatically lowers costs. The third is the emergence of fractional-share trading, which allows investors to buy securities in bite-sized pieces, making it easier to build small diversified portfolios. Companies like Amazon, a single share of which costs more than $3,000, can be included without breaking the bank.Direct indexing is still a small part of the asset-management industry. According to Cerulli Associates, a research firm, roughly $400bn was held in direct-indexed accounts by the end of June 2021. But Morgan Stanley, a bank, and Oliver Wyman, a consultancy, estimate that this figure could reach $1.5trn by 2025, representing a growth rate of nearly 40% a year. Industry executives are bullish. “Personalised investing is coming at all of us like a freight train,” Walt Bettinger, the boss of Charles Schwab, a broker, said in October.Such enthusiasm has fuelled a flurry of acquisitions. In October 2020 Morgan Stanley acquired Parametric Portfolio Associates, the biggest provider of direct-indexing services. A month later, BlackRock snapped up Aperio Group, another big provider. Several other big fund managers and brokers, including Charles Schwab, Vanguard and Franklin Templeton have made similar acquisitions. “Nobody wants to be left behind,” says Kevin Maeda, the chief investment officer of direct indexing at Natixis, a bank. “There’s a gold-rush mentality,” reckons Tom O’Shea of Cerulli.Direct indexing has both benefits and costs. Its main selling point is its ability to lower tax bills. This is achieved primarily through a process called “tax-loss harvesting”, which involves selling and replacing losing stocks to offset gains in winning ones, thereby reducing capital gains subject to taxation. Although this technique can generate returns on the order of 1-1.5% per year, the benefits are close to nothing for individuals in lower tax brackets, or for investors who hold the bulk of their assets in retirement accounts, such as 401(k) plans, which defer taxes on investment gains until funds are withdrawn.Another advantage of these accounts over conventional mutual funds or ETFs is customisation. For ethically minded punters, this could mean excluding fossil-fuel producers, tobacco companies or weapons-makers. The more customisation, the greater the likelihood that portfolio returns diverge from benchmark returns.Direct-indexed accounts are often characterised as a disruptive threat to mutual funds and ETFs. In truth they are part of the same long-term trend. “This is really about the growth of indexing,” says Mr Small of BlackRock. “The growth of direct indexing and ETFs go together, they’re just different ways to gain index exposure,” he adds. Brian Langstraat of Parametric Portfolio Associates says that the primary driver of direct indexing is not lower costs or fractional shares but the decades-long shift towards passive investing. “The trends that are behind it are the same ones as five years ago,” he says, “and will be the same ones five years from now.” ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Direct to market” More

“CABBAGE HOMES” have brought some notoriety to Hegang in recent years. Flats in the small city in China’s far north-east have been selling for outrageously low prices—some for just $3,500 apiece—earning a comparison with the cheapest items in vegetable markets. The region’s economic outlook has been so poor for so long that it cannot retain residents. The city, which is in Heilongjiang province, has lost about 16% of its population in a decade. The cabbage homes were built by the government to help alleviate poverty, but they have found few takers. The local government is now struggling to make good on its debts and is restructuring its finances. In late December officials said they had stopped hiring new government employees in order to save money.Hegang is one of many gloomy stories from China’s rustbelt provinces of Heilongjiang, Jilin and Liaoning. The region bordering Russia, known for its long, bitterly cold winters, has slogged through years of depressed economic conditions as state-owned industrial plants have closed down and young people have migrated south. Poor energy infrastructure meant that companies in the area were disproportionately affected by an acute power shortage in 2021. In a desperate attempt to keep families from moving away and to spur population growth, Jilin has announced that it will hand out “marriage and birth consumer loans” of up to 200,000 yuan ($31,500) to couples.The destitution is also raising concerns about the region’s banks, the combined assets of which amounted to 15.8trn yuan in September. Bad debts are already higher in the north-east than in any other area of China; loan-loss provisions are the lowest. Yet spotting a crisis in the making is a tough task. Hiding bad debts is an easy trick for smaller banks. Local regulators are understaffed. And domestic credit-rating agencies cannot be counted on to identify problem lenders. In the first seven months of 2021 rating agencies downgraded just six banks. They often take action only when a lender is on the brink. Huancheng Rural Commercial Bank, based in Jilin, for instance, suddenly declared that its net profits had fallen by 42% not long after it was downgraded.For an insider’s view on China’s problematic banks, look at how much investment managers at the country’s biggest lenders charge smaller ones for loans. Most banks across China pay similar yields on negotiable certificates of deposit (NCDs), securities that resemble short-term loans from one bank to another, and which trade in the interbank market. Yields paid on NCDs issued by most banks across the country fell throughout 2021, signalling a decrease in perceived risk. Yet those paid by issuing banks in the three north-eastern provinces diverged from the rest throughout 2021 (see chart).The average premium paid on one-year NCDs issued by banks in Liaoning, compared with those in healthier provinces, shot up from about 0.24 percentage points in February to 0.65 towards the end of the year, according to Enodo Economics, a research firm. Banks in Heilongjiang and Jilin have paid similar premiums. The higher yields indicate that large banks believe the local governments of the north-east may struggle to bail out their financial institutions in the event of a crisis, analysts at Enodo said. (The surveyed NCDs were all still rated as AAA, the safest possible, by rating agencies, however.)The north-east is a prime contender to host China’s next banking disaster. Of the four major bail-outs of city commercial banks since 2019, two have been based in the region. Failures of regulation and corporate governance have meant that some institutions have come under the influence of private corporations or individuals, who have skewed their lending. Shengjing Bank, a large bank based in Liaoning with assets of 1trn yuan, has a high level of exposure to Evergrande, a failing property developer. Some of the region’s lenders have lost billions of dollars when financial products have gone sour. Regulators in Liaoning recently planned to merge 12 troubled banks together in an attempt to prevent a crisis. That plan was later watered down to just two. It is unclear how the problems at the remaining ten lenders will be handled. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “North-eastern exposure” More

OBSERVERS HAVE long poked fun at the inability of the economics profession to make up its mind. “If parliament were to ask six economists for an opinion, seven would come back,” runs one version of an old joke. Yet the gibes may be losing their force. A new paper, by Doris Geide-Stevenson and Alvaro La Parra Perez of Weber State University, finds that economists are agreeing with each other more on a number of policy-related questions.The paper publishes the results of the latest wave of a survey of economists that has been conducted roughly once a decade since 1976 (though the results of the first wave are not entirely comparable with later ones). Members of the American Economic Association were asked whether they agreed with a number of propositions, ranging from the economic impact of minimum-wage increases to the desirability of universal health insurance. Based on the frequency of responses, the researchers devised an index that captured the degree of consensus on each question.The results suggest that the extent of consensus has risen significantly. Economists were in strong agreement on about a third of the propositions in the latest wave, compared with around 15% in 2011 and less than 10% in 1990 (see top panel). Respondents were more united on their diagnosis of economic problems. And, strikingly, more of them were convinced of the need for muscular policy.Inequality was a growing concern. The share of respondents who wholly or somewhat agreed that the distribution of income in America should be more equal rose from 68% in 2000 to 86% in 2020-21. Fully 85% thought corporate power was too concentrated. Another worry was climate change, which most agreed posed a big risk to the economy. (Both questions were asked for the first time in the latest wave.)Unsurprisingly, given their views on market power, respondents’ support for a vigorous use of antitrust policy has increased markedly over the past two decades (see bottom panel). Another notable change was in the enthusiasm for fiscal activism. More economists thought that the Federal Reserve alone could not manage the business cycle—perhaps consistent with the decline in its policy rate towards zero—and were keener on a bigger role for government. More of them also agreed that fiscal policy could have important economic effects, both during downturns and over the long term.The dismal science has not become entirely harmonious, though. Economists were slightly more split on the consequences of lowering income and capital-gains taxes in the latest wave, with roughly half of respondents agreeing with the propositions put to them by the researchers, and the rest disagreeing. Enough room, still, for healthy debate.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “The new consensus” More

INFLATION IS SURGING, central-bank money-printing has run amok and political tensions between the world’s powers are intensifying. These ingredients sound like a waking fantasy for ardent believers in the long-term promise of gold. Even mainstream investors might have been tempted to increase their holdings of the precious metal. Why then was it unable to eke out even a marginal gain in 2021, recording its worst annual performance in six years?For conventional investors, valuing gold poses a problem. The precious metal does not generate a stream of income. Since demand for it tends to be speculative, the cash-flow models used to work out whether assets are cheap or expensive cannot be applied.One measure, however, contains predictive power. Every big move in the price of gold, particularly in the period since the global financial crisis, has been inversely correlated with moves in real interest rates. There are few financial relationships that have held up as well as that between the price of gold and the yield on inflation-protected Treasuries (TIPS). The lower real, safe yields are, the greater the appeal of an asset without a yield that may rise in value.Part of the explanation for gold’s underwhelming performance last year is that this relationship continued to hold. Despite the frenzy over inflation, ten-year real interest rates began the year at -1.06% and ended at -1.04%. Gold ended 2021 at around $1,822 per troy ounce, practically flat on the year. Over the past decade, though, gold has been the less reliable of the two. If you had simply held the iShares TIPS bond exchange-traded fund in that time you would have made 35%, more than double what you would have earned by holding gold.Regulation has also dulled the precious metal’s sheen. New rules on bank-funding ratios, as part of the Basel III accord, came into effect in the EU in June and in Britain on January 1st. These consider government bonds to be “high-quality liquid assets”. By contrast, holders of gold, like those of equities, must match 85% of their holdings with funding from stable sources. That makes gold costlier for banks to hold, and puts it at a disadvantage compared with Treasuries. If the yellow metal is simply a less reliable proxy for TIPS, without the friendly regulatory treatment, why bother?The answer for some investors would once have been clear. Paper money and government-issued bonds are ephemeral, and catastrophic failures of financial systems often stem from overconfidence in their safety. But gold, the argument goes, has stood the test of time. The dollar became America’s national currency only in 1863. People have prized precious metals for millennia.Yet gold’s status as the final line of defence against currency mismanagement is also being contested. Cryptocurrencies, particularly bitcoin, are increasingly found in more mainstream portfolios. The asset class was once too small to dent the appetite for gold. Now bitcoin and ether, the two biggest cryptocurrencies, have a combined market capitalisation of around $1.3trn, ten times what it was two years ago. That is around a tenth of the perhaps $12trn of gold holdings, based on the World Gold Council’s estimate that a little over 200,000 tonnes of the yellow metal exists above ground.In 2020 Chris Wood of Jefferies, an investment bank, and a long-time advocate of gold, signalled which way the wind was blowing. He cut his rather sizeable recommended allocation to physical bullion for dollar-based pension funds from 50% to 45% and redirected the five percentage points to bitcoin. In November last year he did the same again, raising the bitcoin allocation to 10%, at the expense of gold.Bitcoin’s wild price swings may for now limit the interest of the more conservative gold bug. Over the past five years the gold price has moved—both up and down—by an average of 0.6% a day, compared with a daily move in bitcoin of 3.5%. But that need not be a show-stopper in the long run. As analysts at Morgan Stanley have noted, gold also began its life as a modern investment asset in the mid-1970s and early 1980s with bouts of extreme volatility. It took almost two decades after the ownership of gold was legalised in America in 1974 for it to become widely held by institutions.A spell of comparative irrelevance for the metal, then, cannot be ruled out. Stuck between more reliable, safe assets on one side and more exciting, speculative crypto-assets on the other, gold now finds itself in an awkward position.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Lost lustre” More